Earnings Call: Q3 2020

Oct 21, 2020

Good morning, and welcome to EQT's Q3 update. I am Olof Sorenson, Head of Shareholder Relations at EQT since the 1st September. I am joined today by Christian Sending, our CEO and Managing Partner and Kim Henriksson, our CFO. We will provide a brief update and present a few pages to you and thereafter go to a Q and A session. Please remember, in order to participate in the Q and A, you will need to be dialed in on the conference call. With that, I hand over to Christian, who will kick off the presentation. Thank you. Next slide, please. Thank you, Olof, and good morning, everyone. As you've seen from the report, we've had a busy Q3 with activities across the board, making thematic investments, we have good fundraising momentum and we're making progress on our strategic initiatives. In fact, EQD continues to operate fairly close to normal, leveraging our digital capabilities and also our ways of working. However, the world is still in the middle of a pandemic and the full long term impact of this is yet to be seen. So while Q3 saw a rebound in activity, of course, we cannot rule out another recession. And there are also political and fiscal events around the world, which may change market conditions quite quickly. Thus, times remain uncertain. And our main focus is always to remain disciplined and be a responsible investor and owner. We will continue to invest with the future in mind. For example, increasingly in the positively impacted sectors after COVID, which we believe will grow even faster than before. And these are actually core EQT focus areas such as TMT, Healthcare and Essential Infrastructure. Next slide please. Now over to the Q3 KPIs. In short, our investment activity picked up significantly in Q3, where we invested €6,000,000,000 of new capital. And this means that for our key funds as of today, EKT9 is 15% to 20% invested Infrastructure 4 is 80% to 85% invested and Infrastructure 5 is 10% to 15% invested. Thus market conditions actually stabilized in the 3rd quarter and supported €1,900,000,000 of exits as well as making us ready really for the next push on exits. And we're preparing a number of those for the next 12 months. However, again, that exit activity will of course depend on market conditions and also the economic situation around the world. Value creation in our funds remain on track with the vast majority of our companies remaining resilient through the crisis, but we do have a handful of companies that remain significantly impacted by COVID-nineteen and will probably remain so for a while given the ongoing lockdowns across Europe and the world. Now IPD6 to 8 all remain on plan to meet the gross MOIC targets, multiple of invested capital. Amphora II and IV also on track, while Amphora III remains above plan. On the fundraising side, we continue to act, what should I say, close to normal, although, of course, it's not normal because it's all digital. But we have announced the hard cap of Infrastructure 5 of 15,000,000,000 dollars We just closed Real Estate 2, 2nd fund in that strategy at the €1,000,000,000 hard cap and thus we continue to execute on fundraisings and more information on that later. We also continue to execute on our strategy and we're super pleased to have announced key hires in our growth team that we announced just a couple of days ago. And we're very excited to have Mark and everyone join us. The divestment of credit is still expected to close in Q4. And looking forward, we do continue to believe in the long term growth of the Private Equity and Private Capital Industry. Lower interest rates for longer means that Private Capital and Private Capital delivering strong returns means that capital will still flow to our industry. In fact, a recent study we did with McKinsey on capital raising shows that we believe $10,000,000,000,000 will be invested in private markets over the next 10 years. It's a quite significant amount. Building on that, we intend to increase the pace of hires and investments in our platform again. We want to make sure we're able to take advantage of these opportunities for the long term, while still remaining vigilant for risk, of course. Next slide please. Now I want to remind everyone again of who we really are at EQT. Our culture and values really define how we act as a firm, as individuals and as members of society. We find themes supporting secular trends and we invest for the future. We act locally with deep sector expertise and have a clear governance model where we really nurture our relationships and draw on the best people we can. EQT leverages our network of more than 500 can. EQT leverages our network of more than 500 EQT Advisors to help drive value creation through the investment cycle and everything we do. And we really integrate these specialists and leaders into our business. We also do take risks. Without risks, there's no reward. And we do make mistakes. But what we try to do is learn from those mistakes and improve continuously at all times. We're future proofing companies through digitalization really making the companies better not just for shareholders, but for all stakeholders. Next slide, please. In fact, we've been purpose driven since day 1. Our mantra from the start was EQT more than capital. We inherited really Wallenberg's long term responsible ownership values. And this mantra has evolved over time and we now say as you know our purpose is to future proof companies and make a positive impact. And actually this year, we even changed our articles association to include purpose in the articles, which means that we were one of the first companies in the world to do so, one of the first private equity firms in the world to do so, and I think the first Swedish company to do so. So that is just showing how committed we are to making sure that we do future proof companies and make a positive impact. We have 2 axes where we drive change and try to make a positive impact. On the one hand, we have the environment where we're, for example, moving all of our companies to renewable energy. On the other hand, we have inclusiveness with lots of different initiatives this year to increase diversity. This year we're focusing on gender and we've put a lot of demands ourselves, on our boards and our suppliers as you know to help drive that move and we are making significant progress although lots more to do. Other initiatives include our ESG linked bridge facility in our funds, which means there is a pricing mechanism designed to inspire the portfolio companies to actually improve on ESG factors and also us, of course, as the managers of the funds. We've also started the EQT Foundation with Celia now as a leader and this is our own incubator where we're going to work to create a cooler and more inclusive tomorrow. As you know, we seek to make a positive impact with everything we do and we're really convinced that this will make us better and make us perform better and drive better performance. We want to deliver the best companies and deliver the best returns for our investors and contribute to a better world. And we think those are really symbiotic. And you've heard it before, we have 2 companies that are exactly the same. One is more sustainable than the other. Which one will attract the best new talents? Which one will attract the best new customers? Which one will have a better relationship with regulators? Which one will have the most future proofed value chain? Well, we think it's going to be the more sustainable one. Therefore, the more sustainable one will also be more valuable and be a great investment. That's how we think. And if you think about it, who else than private capital industry has really the governance and resources and the business model to drive positive change across a number of companies and industries. But we do see this as a journey and there's still lots to do to bring this kind of thinking into an action actually into every aspect of our business. Next slide please. With EQT9 sorry, yes, we really took another step on our growth journey. And as of Q3, our AUM stands at $46,500,000,000 once we've activated EK9 that is. Infra5 is going to represent the next significant change in our AUM and Kim will talk more about that in a few minutes. So performance continues to be at the core of our success. We're going to continue to expand our global footprint and our locals with locals approach. We just announced our private equity team in Sydney and we're going to be moving into Tokyo over the next year or so. And like I said, you see this from this graph as well. We are on a long term journey to continue to build EKT for the future. Next slide please. So fundraising has continued to progress in Q3. We activated EKT9 in July and are moving now to finalize the fundraising. It's now materially concluded, but there will be a tail of fundraising into next year. In September, we announced the hard cap of $15,000,000,000 for Infra5 and we expect to and we expect to start recognizing management fees as from November. Historically, our fundraising cycles on average has been actually about 3 years if you look at this chart. And that is typically what we do in the more positive market conditions. When things are more difficult like the financial crisis that can stretch out to 5 years or so. And I wanted to remind everybody in a downturn what we would expect to change, what we would expect fundraising to take longer, investment activity to slow down, exit activity to be slower and also value creation to take longer, meaning carrier recognition would be delayed. So as an example, in the financial on the great financial crisis, it took 5 years between EKD5 and EKD6. And the fund sizes remained broadly flat just grew a tiny little bit. Now looking forward again, we do see an interesting pipeline actually of deals, but our pace of investments will continue to depend on market conditions. We're not going to compromise on our return targets. Performance is really at the core of everything we do. We will stay true to our thematic investment approach and our value creation agenda and therefore we're going to be patient and we will only exit the company as when prices do reflect their true value. Next slide please. Like I said, we're executing on our strategy. And on October 19, on Monday, we announced the growth team where Mark Brown joins us as Head of Growth from and he joins from Microsoft, where he's been Head of Business Development, has led more than 185 acquisitions, including companies like LinkedIn, GitHub and Minecraft, which is a Swedish company actually. Mark is joined by Carolina Brocato, who joined us earlier this year as a partner in London. She's formerly been a partner at SoftBank and Atomico. And they are joined by our talents, Johan, Dominik, Victor and Henrik from various parts of EQT. So we believe that this team is very, very strong and we look forward to building the strategy together. Now geographically, Asia Pacific, as you know, remains a strategic priority. We have seen COVID slowing down some of our progress there, but we have recently announced key hires to our Private Equity team in Sydney, for example, with Frank Hex and David Frode. And as background, we do believe Australia and New Zealand actually represent quite interesting markets for EQT. We've already invested in EyeMed there and Nexeon Asia Pacific, for example, as well as MetLife Care and infra. Over time, our APAC strategy like I said will focus on Japan as well and ultimately also South Korea, probably a little bit less so regarding China in the near term. Moving over to Real Estate. We just closed Real Estate 2 at €1,000,000,000 the hard cap. If you look at it, Real Estate is actually the largest single asset class globally. Allocations are increasing to that sector. And thus over time, our ambition is to scale real estate really into one of our core significant strategies. When It could either be something like seeding a new team or a new strategy as we did with public value and real estate or it could be more strategic moves to build a presence in certain geographies or strategies for that matter. But the bar is high and the culture and strategic fit is critical in anything we do. And with the divestment of credit, which is imminent, we are solely focused on active ownership strategies. This means that there are strategies where we can really actively drive value creation and transformation in the investments we make. Good. Now let me talk to you on the next page, next slide. Let me talk a little bit about the growth strategy again. We do have this new dedicated strategy. It's really focused on partnering with founders and management teams of market leading companies. We are going to do this through investments, growth investments in a range of technology, tech enabled and scalable businesses. This growth strategy really fits perfectly between Ventures and Equity. Now, EKT Growth is going to be an extension from a number of successful growth transactions that we have made and a large number of investments that we've looked at, but haven't been able to make because we haven't had that mandate. So these have and these deals come in either from mid market or private equity or venture strategies and there's quite a good deal flow. We're also going to use Mother Brain at the core of growth. And Mother Brain is, for those of you who don't know, is our in house artificial intelligence system. We have 17 or 18 data scientists working to continuously build that out every day. And Mother Brain has actually already sourced about 100 dollars 1,000,000 of investments for the venture funds. And it assists in identifying trends and sourcing potential investment opportunities as well as potential threats actually for existing investments as well and something we're continuously building out for other business lines as well. So we think this is quite unique. We've done our first balance sheet investment this quarter, which is a smaller participation in a very exciting company called the LIVEKINDLY Collective, which is in plant based meats and growing to become a global leader there. And we're going to continue to use the balance sheet to do these types of investments for some time. The IKG Growth strategy is expected to be fully operational in 2021, in line with the strategy we described at the IPO last year, we accelerate the strategy by making these balance sheet investments from EBITDAB and those can then subsequently be rolled into a new fund. Also our mid market Europe strategy will be morphed into growth for lack of a better word. And then we'll have Ventures, Growth and Equity as the Private Capital strategy. And as you know, regular most of you know, we cannot comment on future fundraisings due to regulation. But of course, we do want to tap larger investment opportunities from the start to really build the strategy for the long term. So with launching growth, we're one of the few private markets in the world private market firms in the world that actually has investment strategies that cover up that cover all companies from the start up phase until mature leading businesses. And that is quite exciting and we think can really benefit us in terms of becoming in terms of being in touch with all the different trends that are building businesses now and will make us a smarter investor. Now we're of course always evaluating also the next step for EQT and a natural extension of this could be a longer term investment strategy beyond our private equity strategy. This would be a strategy with that has purpose at the core, of course, like everything else we do. But it's an early idea. We're going to evaluate that further based on our own internal analysis and also demand from our clients. And actually with that, I hand over the word to Olof again and then Kim will follow. Thank you. Thank you, Christian. So I'll talk a bit about the activity that we saw both on the investment and the exit side during the Q3. And as you will have seen, we announced investments of approximately EUR 6,000,000,000 in the 3rd quarter. The announced volume represents about 2 thirds of our investment activity over the last 12 months. I think it's important to keep in mind that some of the investments that we announced in this quarter were also deals that we have been looking at earlier in the year that got postponed and then materialized during the Q3 as markets stabilized. If we look at our total investment volume over the past 12 you will see that approximately 80% were in our core sectors, TMT or Healthcare. And as you all know, EQT's strategy is really to acquire high quality companies, which we then aim to make even better. And I wanted to highlight 2 examples of those situations. The first one being EQT 9 who in September announced the acquisition of Natural Colors from Christian Hansen in Denmark. This is a highly thematic investment. It's a company that is operating in a market that is supported by strong trends. The first one being increasing consumer awareness around health and the environment. And secondly, the ongoing transition from synthetic coloring to natural ingredients in line with demand for plant based food. The second example that I wanted to highlight was the JV that EQT Real Estate 2 launched in the U. K. There we're going to build 3,000 high quality homes with high sustainability credentials in more affordable areas of London. And then if we turn to exits on the right hand side of the page, you will see that we announced exits of about EUR 1,900,000,000 in the 3rd quarter. Again, this represents about half of our exit value in the last 12 months. So looking at both the investment and the exit activity over the past quarter, it's important to keep in mind that these are quite significant parts of the last 12 months activity. And therefore, please bear in mind that both investment and exit activity can be relatively lumpy in any given quarter. We find that market for initial public offerings is available to us as we plan our exits. And as a reminder, as part of our exit strategy, sector priorities. Next slide, please. Now let me turn to our portfolio and update in light of the ongoing pandemic. First, I'd say we remain focused on the risk of the pandemic and other external factors that may potentially affect us. For each portfolio, we continue as always to maintain base case and downside plans. We have continued to improve and extend financing structures during the quarter by tapping debt markets in Q3. These and other measures have helped us reduce the size of equity injections that we had anticipated in Q1. If we look at our portfolio, we segment it into 3 broad categories. In the first one, we put the companies that have been the most impacted by the pandemic. This constitutes approximately a handful of companies from both our equity and our infra strategies. These companies are primarily related to travel and leisure, consumer retail and transportation. In the first half of twenty twenty, we did certain equity injections to support these companies. Those contributions represented approximately 1% of total commitments in key funds and that excludes CQT9. So you will see that this is quite significantly less than the approximately 5% that we mentioned in the Q1 of this year as we were evaluating the potential effects of the pandemic. However, please bear in mind that this category is one that we expect to continue to be severely affected by the pandemic for a long period of time. And these companies may only improve if and when travel and leisure and also social habits eventually return to an approach pre COVID levels. At the moment, we're not expecting any significant additional equity injections to these companies, but we do not rule it out. And as Christian was saying, the market outlook includes several uncertainties. Then if we turn to the next category, the middle column of the page, this is where the vast majority of our companies are in the resilient category. Here we have our core focus including TMT, Healthcare, Industrial Tech, which all have been less affected by the pandemic so far. However, also for this category, the long term impact of the pandemic and the other factors out there may, of course, eventually also have an effect on these so far resilient companies. Lastly, in the 3rd segment, we do find that a few of our companies have actually been beneficiaries of the pandemic and the changes that we've seen to society as a result of the pandemic. We have companies in selected parts of our T and T and health care portfolios, but also certain beneficiaries in our ventures fund, for example. The beneficiaries, they see favorable valuation benchmarks. And for certain of these companies, we may be able to accelerate the value creation agenda and therefore also plan for exits earlier than initially anticipated. Next slide, please. So if we turn briefly to the valuation of our key funds, as Christian mentioned earlier, the value creation process remain on track for most of the funds or above plan when it comes to infra 3. To note in the quarter, we have increased the gross MoiC for EQT7 from 1.7 to 2.0 times. The uplift in valuation for this fund was primarily driven by increased valuation assumptions for certain companies rather than us actually having realized any significant exits in this fund in the period. As mentioned, EQT6 and INFRA 2 remain on plan. Please keep in mind that these funds have fewer assets left and some of them are more exposed to the pandemic. Worth also noting that our older funds, of course, constitute a relatively small part of our AUM. What all this means in terms of valuation levels and potential implications for Kari is something that Kim will talk to. And with that, I will hand over the word to Kim. Thank you. Next slide. Thank you, Olof. But in terms of how all of this impacts our financials, let's start with AUM though. And the key driver of the increase in AUM in Q3 to SEK 46,500,000,000 has been the fundraising of EQT9, where we have, as of quarter end, closed out in excess of SEK 13,000,000,000 of investor commitments. And INFRA5 has not yet been included in this number as there hasn't been any closing of Infra5 there. When we report full year numbers, we expect to recognize management fees from Infra5 from 1st November. And as a reminder then, in the current financial year, the management fees charged will be on the commitments that we have as of the end of this calendar year. Worth noticing is also the so called step downs we have. We have when a successor funds starts charging management fees in an existing investment strategy, it's a step down of the AUM base, but not of the management fee level. But for example, the step down the AUM base in EQT8 decreased by SEK 3,400,000,000 for the second half of twenty twenty when EQT9 was activated because then the EQT8 started to charge management fees on net invested capital instead. And net invested capital in turn includes only the closed deals, but not the signed deals. So transactions that were signed but not closed in a particular period, they get included then in the AUM base in the period after the transaction has closed. So that's a bit of technicalities there. So the AUM step down base, it's measured on a semiannual basis. So key date for H2 in 2020 is 30th June. And for H1 2021, it's then going to be the 31st of December. We have included further details of these mechanics in the appendix, but the main takeaway is that only one fund within each fund strategy can charge fees on committed capital at any given point in time. Next slide, please. So in terms of carried interest, let me first remind you that internally at EQT, the way we follow carried development is on a long term basis and that the key data point for us is whether the funds are on plan to meet their long term targets. Then for accounting purposes in a specific period, carry recognition is as previously discussed. It's driven by a combination of increases in unrealized valuations and or realizations of investments. So given the recent valuation uptick that Olof mentioned in EQT7 from 1.7x to 2.0x, The fund currently, it fulfills the rule of thumb and the criteria for carried interest recognition. But that said, given the uncertainty around us, we remain very cautious on the development that we may have in the coming periods and the impact that, that may have then on valuations and exit activity. We'd like, however, to take the opportunity So it looks a bit complex, and I'll do my best to sort of to be pedagogic here. But it's important that you understand this. But regardless of the fact that we do look at it on a long term basis. But starting on the left hand side in the chart here, the fund valuation for accounting purposes is then built up of 2 components. It's the unrealized value where we apply a 30% to 50% valuation buffer on it. And it's the realized value as we start to exit companies somewhat later in the fund lifecycle. And until we have approached this rule of thumb for a carried interest recognition, all of the accrued profits have been allocated to the fund investors. And then we test if there is carried interest for accounting purposes. We first deduct the valuation buffer, which I mentioned. The valuation buffer on unrealized investments is 30% to 50% across our funds depending on the investment strategy. And from the value after the buffer, then you deduct the invested capital, the management fees and the operating expenses of the fund. And any residual profit then is then shared eighty-twenty between the fund investor and the carried interest participants. And out of that 20, EQT AB is then entitled to its share of the carried interest. And that varies between funds. In the most recent funds, it is approximately 35%. And in EQT7 that we just talked about here, it's 25%. So this represents the accounting mechanics that we have at a certain point in time. But please again note that internally, we're looking at this on a long term basis, the incremental steps of future proofing the companies and building value towards the long term targets, that's what ultimately drives the carried interest. As I have pointed out before, it's very challenging to predict with high certainty what level of carried interest we will book in any specific interim period because small shifts in timing may occur without any material impact on the overall carry potential. But we feel very comfortable with the long term targets and our plans to reach or exceed those targets. Next slide, please. Our dedicated employees are our main assets and instrumental for our future success. Like we have pointed out many times, around twothree of our cost base relates to personnel expenses. And the other operating expenses are also highly related and correlated to how we expand our footprint and the workforce. So in Q3, we saw the effects of the hiring force we introduced during the spring, and we saw only limited net additions in the last 3 months in FTEs with 709 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Pety 9 feet Feet plus by end of September compared to 6 99 by end of June. But we have already started easing the hiring pause, and we now expect the increase in hirings to lead to an uptick both now in the current period but also in 2021. And when we think about 2021, we expect it also to be impacted by a catch up from the freeze that we have had here in 2020. So that would be in addition to the historically approximately 100 person net additions that we have had. What areas are we investing in? We're investing in the launch of the new strategies. So adding investment professionals there. But we also have some projects on the central function side, particularly focused on increasing our global fundraising capabilities and further digitalization of the platform that we're using. So those are a couple of examples. As I have mentioned before, the expansion we're doing is mainly outside Northern Europe, for example, in the U. S. And APAC. And those are also, in relative terms, more expensive regions. So we could see a potential uptick in the average cost per employee going forward. On separate note, as we plan ahead, we also start to look at ways to create further flexibility in our capital structure. So this could include then possible debt facilities over time. Next slide, please. So to conclude here, I mean, our strategy lies firm, but we do expect the markets to continue to be somewhat unpredictable and possibly bumpy. We aim to play an active role in influencing the new normal post COVID-nineteen as responsible purpose driven investors with a laser focus on performance. So with that, I'll say thank you and open up for questions. Thank If you're also watching the webcasted presentation, please make sure to mute your computer audio and keep listening to the audio in your phone. Our first question comes from the line of Jacob Reink from Nordea. Please go ahead. Thank you, and good morning, everyone. Thanks for taking my questions. I have a few ones, and I would ask them 1 at a time, if that's okay. The first one, just on your the pace of investments in your funds. You said 3 years, Christian, and but you also said that activity was relatively high right now. So I guess it could even be below 3 years, which means we might soon have to start thinking about the sizes of your next flagship funds. And just around that, what are you planning for here? In connection with the IPO, you said that the new funds should grow roughly in euro terms, the same as the old funds. Is that still the guidance for the next flagship funds? Or does something change there? Yes. Should we start with that? Very good question, and I'm glad that you're thinking about the future. We are investing if the markets are reasonably healthy as they are right now, even though the world is in a complicated place, then we do invest on around a 3 year basis. You can see that from the graph that we showed. And that's what's happening as we speak. Of course, we don't know what's going to happen into 2021 2022, so it's hard to give a prognosis. So it's a little bit early for us to give you any indications of how we're thinking about the next fund generation. But as we get a bit more invested in the 2 flagship funds, we will of course start to talk with you more about that going forward. So I think we have to leave it at that for now. But just sorry to follow-up. You mentioned also that your McKinsey study had shown that X number of 1,000,000,000,000 would come into private capital over the next coming years. Would that then be in other funds or new strategies? Or do you think that will go into your current flagship funds? Or is there a limit on how big those can be? Well, that number is actually based on all of the asset classes where EQT is investing. And of course, it's a number global number for the next 10 years and analysis done by McKinsey. Who knows if they're exactly right, but what's important I think is that given that low interest rates are expected to continue for a long time across the world, there's still a need for yield in many pension fund systems, health care fund systems and for all investors. The private markets continue to drive yield and we expect to be able to continue to do so over the long term and therefore we will continue to attract capital. That's the logic. And of course, means that we're going to be continuing to invest in EQT and building our strategies, building our platform and also continuing to expand as we have been geographically. That's kind of how we think about the whole ecosystem. Okay. Fair enough. And then on your capital position and M and A and dividends buybacks, other ways of paying out. What's your thinking? I think when you look at the slide where you mentioned your M and A, those potential M and As doesn't sound that capital intensive. I don't know if you agree with that. But if you agree, then could you maybe share your thoughts on dividend policy and also potential for doing share buybacks in the future? I'll let Kim talk about the capital structure and dividends. Now when it comes to M and A, the way I'd categorize it is that we're looking at 2 different types of investments there or add on acquisitions. 1 would be smaller teams that we would bring in and build a business out from like we have with real estate and with public value. Or it would be others either geographic or sector specialists, which would be more meaningful in size. And thank you for a good question. Let me comment then on the dividend part of it. The what we've said as our target is that we want to have a steadily increasing dividend in absolute terms and that still holds true. We do have a number of exciting investment opportunities on the horizon, not only M and A, but in terms of initiating these various new strategies. So we have not been discussing any share buybacks that's not on the horizon in the short term. What we've said is that to the extent we at some point in time in the future, would be in a situation where we had excess capital, whether we could envisage paying sort of extraordinary dividends at that point in time. But that's really speculation far ahead in the future because right now, we are very focused on using that capital for the growth and benefit of the shareholders. Thank you. And then just on Kim, you had your run through of the personnel or accelerated investment in personnel. Would it then make sense to assume around $150,000,000 increase in FCs next year, the $100,000,000 and then it seems like you're $50,000,000 behind schedule in 2020? I think the way of thinking of it is that you're suggesting is correct. Whether it's exactly SEK 50,000,000 that we're behind, we'll see how that pans out for the rest of the year. But the way you're thinking of it is correct. Thank you. And then the very last and small question. In the Q2 conference call, you mentioned that the prices on the new funds were slightly, slightly smaller than on the old funds. Could it be a bit more specific here maybe? Thank you. Is your question regarding the management fee rate in the new funds? Yes. Yes, exactly. Yes. Kim, do you want to take that? Yes. I think the terms in the new funds are broadly similar to the old to the predecessor funds. So there's not a change in management fees there. But the management fees has a there's a number of different levels there in terms of size and in terms of when you come into the fund, at what timing you come into the fund. And that could impact the average rate. But we are talking sort of the 2nd decimal or something here. So it's nothing that we focus on a day to day basis. Thank you very much. And the next question comes from the line of Ermin Kari from Carnegie. So first one, just more details. On EKT7, you said it's currently meeting all the requirements and sort of evaluation and so on for carrier recognition, but it's uncertain times. Should we read into that that you will hold off on carry due to uncertain times or just that, that could make valuation come down until we're still looking at the H2 numbers? The latter. If I'm not saying that will happen. I'm just saying that it is generally very uncertain times with the 2nd wave of the pandemic potentially on its way in Europe, etcetera. So we are just being very cautious. But we do not yes, that's essentially what I'm saying. Okay. That's very clear. Thank you. Then the second thing was also more detailed on EQT8 and the step down there. I understand you correctly that, for instance, the deal for IFS that you acquired from 67, that could basically make the step down be a small reversal in Q4 on that sale? Not in Q4, but potentially in H1 2021 because it's measured as of the end of year in 2020. Okay. But then I guess the dynamics. Perfect. Then more of a helpful question. Could you tell us more about the intention to use the balance sheet to seed investments? I mean, I know you've talked about this since IPO, but could you tell us more, will you carry the full investment risk? Or is there any mitigating factors to it? Should I take that? I want to take it from a strategic point of view, but from a technical point of view, when it's on our balance sheet, yes, we take the full risk of it at that point in time. The idea though is to use our balance sheet to accelerate this the growth of these new initiatives and then roll it into a new fund. So we don't expect to sit with these investments on the balance sheet for a long period of time at all. Exactly. That's the sort of mechanics. But Chris, you may want to comment on that. And the reason we're doing this is that now we have and the growth team is the best example. We have the team in place. We have the strategy clear on how we want to invest the funds. We have the deal flow. So we'd like to be able to make those investments. And then after we've made a few investments, start the fundraising process, layer those funds those deals into the fund and then create this new fund strategy. The way that we had it before, before we had a balance sheet, what we needed to do was first then recruit the team, then sharpen the strategy, then go through the regulatory process of being able to fundraise, then fundraising and then we could start investing. And we're talking about a difference in time of probably 18 to 24 months. So this actually creates a better dynamic, I think both for the team and for EQT and for our LPs and ultimately for the shareholders as well and just helps us move the firm forward in a better way. So that's why we do it this way. And could you give us any sort of guidance on how much of your balance sheet could be deployed sort of at onetime in these kind of investments? Tim, do you want to take that? Yes, yes. I mean in any single investment, let's say like this, we have a number of different initiatives. And I would say that we wouldn't allocate more than, say, SEK 250,000,000 to any single initiative. And then within that initiative, you'd probably do it between 2 to 4 investments out of it. But it depends on the type of strategy. This was at least in growth, it would look like this broadly. Okay. Then one last question sort of also on the growth front. When looking at it strategically, it looks like it's quite similar position to the mid market. Does this mean you will discontinue the mid market strategy? Or will it just be a complement to it? Yes, I think that's a good question. The way I tried to say it in my introduction was that mid market is going to morph into growth. If you look at the mid market strategy over the past several years, it's actually been very focused on growth investments. So we've done some growth like investments in ventures, some in mid market and some in equity, but not to a full extent because we haven't had that full mandate. So after this change, we're going to have the ventures funds, we'll have the growth funds and then we'll have the equity business. And then maybe in the future, a long term strategy as well. So mid market Europe will be rolled off and growth will be rolled in. So that's very clear. That's all for me. Thank you very much. Great. Good question. Thanks. And the next question comes from the line of Arnaud Gebel from Exane BNP. Please go ahead. Yes. Good morning. A couple of questions, please. Firstly, in terms of the investment pipeline, I was wondering if you could give us a bit of a quantum in terms of the that you might be looking at. And I mean, if markets hold up, clearly, you seem to be on a good path to be raising in 20 22. So aside from the I suppose the dominant factor we should be thinking about here is market conditions more than anything else. Is that right? But I mean, could you also give me a bit of a quantum in terms of the pipeline? That would be helpful. And secondly, I mean, very well understood from your comments that you seem to be targeting the same returns on these deals. I'm just wondering what sort of moi could you give us some specific examples as in terms of what the excitement is on some of the future investments? Thank you. All current investments in the pipeline. Thanks. It's what I can say is that the current market is quite active as you know. And with our setup where we have thematic investing, sector based investing on the one hand with teams focusing on finding investments through finding interesting trends underlying these sectors together with the other access, which is being local with locals. And we're for example, the only private equity firm in the world that has offices in every major European country. And we invest always also working to find deals together with the sector teams. So our deal flow is almost always quite strong. So the difference is can you make do we believe we can make the investments at the required rate of return, which we do and that makes us highly selective. So when the market is good, then we're typically investing like I said on this 3 year basis and pipeline right now is pretty strong. I can't really go into any more details, but we are just we're looking at companies that from all sources, from entrepreneurs, from public to privates, from strategics, etcetera. And what happens during a downturn is that and our financial market downturn as well is that sellers become less keen to sell, just like EQT, for example, earlier this year. And then the market slows down and also with more uncertainty, the capital markets may not be there and makes deals more complicated also for us. That's why there's kind of a cycle in this business. When it comes to target returns, we are not lowering our target returns. We're keeping them in the same. So you know our target MOCs for infra and equity and those are in the on plan range. That's still how we're underwriting deals these days. In order to achieve that, of course, what we're doing is we're investing a lot in capabilities. And that's why we have our push towards purpose and sustainability, our digitalization strategy or mother brain and all these other value creation elements that can help us transform and take these businesses to the next level because prices are high for assets these days. So you have to do 2 things right. You have to select the right assets, but you also need to really create value with the companies. And that's where we're investing in obviously both of those. And so we can continue to deliver for the future. Very helpful. Thank you. And the next question comes from the line of Roberta DiNuca from Goldman Sachs. Please go ahead. Hi, good morning. One clarification, please. The Equity9, you said it's in excess of the €13,000,000,000 I assume that's not on the final close. Is there any visibility or anything you can say about timing of a potential of a final close? And then I have another more, let's say, broader question on EQT growth. I understand, obviously, kind of short term goals cannot really be disclosed, but how can we how should we think about the strategy over the longer term? Kind of what are the ambitions on the growth side? And also given that now you have subsequently kind of all the parts of the equity investment. Is there a scenario in which you could roll out an investment from a venture capital from 1 of your VC fund into growth fund or from the growth into the private equity, kind of sell it to your own funds? Okay. Thanks. Good questions. I'll answer the latter 2 and then Kim can take the first one. When it comes to growth, we believe this can become a pretty significant investment strategy for us. Ultimately, we think it's going to become a global strategy. After several fund generations in the beginning, it will start in Europe. If you look at the biggest players in the world in growth, the fund sizes are $6,000,000,000 to $8,000,000,000 for the time being. And if we look at where we are right now, our mid market fund is at €1,600,000,000 We would expect to start the strategy with a fund which has more firepower than that one. So I guess that's how we comment on it and maybe Olof and Kim want to give a little bit more color on that. When it comes to moving investments between funds, it's this is a little bit more complicated question. But clearly, from ventures into growth, we can do partnership deals and help these companies grow from more start up phase into the more mature phase for sure. But it's a very sensitive question and each of these funds are separate and have their separate investment strategies and investment committees. So anything like that would always be done on arm's length terms and with a very predetermined process that we've developed over years and which is aligned with best practices in our industry. Kim? And yes, thank you. And then coming to your back to your first question, it's correct. The EQT 9 has not had its final close. And I believe Christian mentioned in his talk here that it will run into next year. There will be a tail into next year with the fundraising still ongoing. So we're not going to be more precise than that. And the next question comes from the line of Bruce Hamilton from Morgan Stanley. Please go ahead. Hi, good morning guys. Thanks. The just got a follow-up question. I guess on the growth capital front, you've given some useful color about thinking through possible capacity and that sort of thing. In terms of time frames, you've done one investment from the balance sheet. You've got the team. You've got an accelerating investments. So I assume should we assume that there's a decent chance you'll be generating fees from a growth capital fund in the course of 2020? And then on the age of 2020, it's a little bit slower. Would it be fair to assume that that's possible in 2022? Is there any kind of partners you could talk to maybe if you can probably be more explicit on the current fundraising? And then second question, just on the longer term strategy. Obviously, you're at your earliest stage on planning that. Can you help me understand how you structure that? Would that be a sort of permanent capital vehicle? Or would it just be longer than the typical tenure duration funds? So would it be more like a kind of investment trust? Or how to think about that? And then finally, one clarifying question on costs. I think you said, along with the helpful comments around the hiring activity, that you'd expect some increase in the average cost per employee. I think I may have missed what you're referencing there. So if you could just remind me on that, that would be good. Thanks. Yes. I'll start with the first two. Thanks, Bruce. The growth strategy will make investments typically between €50,000,000 200,000,000 euros per deal. When it will start generating fees, it's we're not going to we don't know yet today. But the fact that we have our team in place now, we're starting to make investments and typically takes, let's say, a quarter or so to prepare a fundraising. Maybe that gives you some indications of the kind of timeline we're working on. Then when it comes to the long term vehicle, this is still very early days. But with a long term vehicle, the idea would be to align it very much with what our investors are looking for in terms of generating long term capital gains, probably slightly larger investments, slightly fewer investments and something which would have either a normal fund structure or some kind of evergreen fund structure that really depends on a number of factors. So it's too early to tell right now, but we just wanted to indicate that it's a natural extension for us now that we have maybe we can follow all in our companies through the lifecycle. There are some assets out there that we think are really interesting that we can own for significantly longer than the typical private equity timeframe. And particularly companies that we can help future proof and make more purpose driven and more sustainable for the long term. But right now, we're just literally at that discussion level that I now just introduced to you. So I couldn't give you any more than that today. Okay. Thanks. And Bruce, on average cost per employee, the only thing I said was that the hirings we are making in the U. S. And in APAC and the geographic growth areas we have are on average higher cost than the Northern European base. And that will over time mean that we will have an increase in the average cost per employee. Got it. Okay, that's helpful. Thanks. The next question comes from the line of Gurje Campbell from JPMorgan. Please go ahead. Hi. Good morning. Thanks for the presentation. Just two questions. In terms of the investments you're seeing coming to the market that you're looking at at the moment, just what sort of are they smaller deals, large deals? Are they companies which are you view as being kind of beneficiaries of what's going on in the market? I'm just trying to understand that. Sellers, are they selling things which they're having issues with? Or are they selling companies which they still feel are seeing good growth? That's the first question. And then just linked to investments. In terms of the new deals, you've obviously done quite a lot of deals and exits in Q3. How much of that was sort of postponed deals from the start of this year, early last year versus sort of brand new deals that you've been seeing? Good question. For EQT Strategies, we're not market timers. We typically don't buy troubled companies. And so the answer for us is that we're active in the healthier sectors, TMT, Healthcare, Essential Services, Essential Infrastructure. And that's an area where we're continuously building relationships, building the pipeline. I mean if you were to visit one of our offices or one of our teams and ask about their pipeline, you'd see it you'll see the short term pipeline, you'll see the medium term pipeline, you'll also see the dream. We'd love to own this company whenever that comes for sale, whether that's 3 years, 7 years or 10 years away. And something I think we followed on average in UQT 8, I think we followed the companies on average between 3 to 5 years before we made the investments. So this is a very long term game. Of course, there were a few deals in Q2 and therefore maybe Q3 was a little bit more active because of that. But the fact is that with low interest rates with companies in those sectors performing pretty well and capital requiring a yield. If these market conditions stay, we expect the market we expect there to be continued healthy activity at all size levels really. And even the IPO market is open as you know. But as Kim also mentioned earlier, it is a very uncertain time right now, pandemic, geopolitical issues, etcetera. So we're just being cautious. It's a healthy strong market. In the sectors that are active are the ones that are EQT's focus areas as you know, but we just want to have our feet on the ground and not get carried away. And yes, I think that probably answers the question. Great. Thank you. And the next question comes from the line of Hubert Lam from Bank of America. Please go ahead. Hi, good morning. I've got three questions. Firstly, I just wanted to double check. For the companies that are going to be hit by the pandemic, can you remind us which funds are they How big are they within these funds? And have they affected the overall performance of these funds? That's the first question. Second question is on performance fees. You've announced a number of exits already for this year. Just wondering what are your expectations for performance fees for the second half or we should expect anything? And lastly, on a fundraising pipeline, now that you've nearing the end of the fundraising for your 2 flagship funds, should we expect other funds to close possibly close for next year? Just wondering if you could try to get a sense on that? Thank you. We talked earlier this year about the statistics on which companies were affected in our portfolio and which were not. Those are roughly still the same. So we said, I think around 10% of the portfolio or so were companies that were more impacted by COVID than otherwise. And we also expected earlier that we would be that we would require about 5% of the capital in our companies to and our funds to support the companies. The statistics now are we've only needed 1% of the capital to support the companies. I think we've been pretty successful in working with our working with the companies and working with the financing providers and others to help the companies to where we are today. Of course, we don't know what's going to happen with the pandemic now. So it's a little bit hard to give a prognosis. And the way that these more effective companies are placed, it's maybe 1 or maximum 2 companies per fund across a number of different funds. So it's a per fund, it's a relatively smaller or quite a small exposure. And again, if you flip it around, that's as a result of our investment strategy, which is focusing on those sectors that is mentioned in the last question, TMT, Healthcare, Essential Services, Essential Infrastructure. So yes, I think that gives some facts. Maybe Kim wants to add to it and answer the other two questions. Thank you, Chris. No, that's fine. That's right on the pandemic and the fundraisings. In terms of performance fees, I would just reiterate what I said that sort of EQT7 is the next of our key funds to be in carry mode. And if you look at the numbers right now, that looks like we would be in carry mode at the end of this year, assuming that things continue as they are right now. And that's approximately what I would say on that. I don't remember what was there another question still, fundraising? Yes. Maybe you can repeat your question on fundraising. That wasn't totally clear. Yes. Sorry. So you're nearing the completion of your 2 fundraising for your flagship funds. So just wondering for next year, are there any other funds that are also expected to close as well, like I assume like smaller funds, just anything to kind of look out for? I think I'll answer it slightly differently. We have Real Estate 2 just closed and public value, which is one of our newer strategies is an open ended fund. So with certain longer term lock ins, so it's something which is more like permanent capital in a sense. That one is continuously fundraising. So that's part of the answer. And then we will launch ETG growth at some point during next year, but it's too early to tell when any first closings would be of that. Anything to add, Kim? No. Those would be the key ones. Great. Thank you. And the next question comes from the line of Mats Luyendahl from SEB. Please go ahead. Yes. Good morning, guys. Extension Q and A session. So I think most of my questions have been answered, but just a small technical one, Kim. If IMPRO5 is activated from November 1, then we should have the step down of Infra IV or from that date? That is how we should see it or Yes. We expect Infra5 to be activated from November 1. And then you would calculate the management fee on whatever fund investors have committed to at the end of this year then. So not on the full amount, but rather what would be in the books by the end of this year. And yes, the step down would be then, but based on whatever the number was at the end of June. Okay. Thank you. And the next question comes from the line of Jens Ehrenberg from Citi. Please go ahead. Hi, good morning, Alex. And thank you. Yes, not any questions left on my side. I have just a couple of follow ups in there. On the core equity portfolio update, I was just looking at Slide 12, and I appreciate you mentioned the 10% that probably more impacted companies in your portfolio. Just to get a bit of a steer how that's attributed between, I suppose, the beneficiaries on the one hand side and the more structurally impacted companies within your portfolio on the other hand side. Is that would you say that's, I don't know, fairly balanced? Or is that mostly due towards one or the other side? Appreciate mostly we're always talking about more impacted companies in these times rather than back in the performing ones. I'm just trying to get an idea of that. And the second question I had is on just very briefly on the JV within your estate that you had announced with Sigma Capital in the U. K. I was just curious what exactly, the capital in that JV, you bring to the table in terms of the well, yes, really, that's the ultimate investment that will be done in the UK, if that settles as well? Thank you. The do you want to start on the first one, Ken? I'm not sure I followed the question. So, Ulla, did you? Yes, I can give it a go. So I think the first question was around what share of impacted companies we have versus the beneficiaries in the portfolio. And I think it's fair to say defining the impacted companies the way we've described this is probably more clear cut than defining the beneficiaries. I mean, as we said, we have about a handful of companies in the impacted category, and those companies that are quite significantly impacted by this. And it's quite clear we've had equity injections in the quantums that Chris referred to earlier. In the beneficiaries category, there are various aspects of beneficiaries in this. So it's harder to put an exact number on exactly how many companies those are. But this relates to some more degree in terms of teams that we're seeing increase in data usage, for example, for that benefit some of these companies. And as I said, there are some companies in the ventures front, for example, that benefit from changes in consumer behaviors, etcetera. So there are probably more companies in this category than there are in the significantly impacted category, but it's on a broader scale. Yes. Thank you, Rudolf. I can answer I could give you maybe a slightly different twist to it just at a higher level. If you look at the targets for our funds, they remain as they were before. It may take a little bit longer time for some of them to get there. Some of them might actually perform a little bit better over time. Let's see for the key funds. And you can also look at the valuations overall from December through the different quarters till now. In total, the valuations of the portfolio are up 6% for the year. I'm looking in the wrong place now, looking at the TV. So that also gives an indication as to the balance of how this is playing out. So I think Olof characterized it very well and that other element may be due to some more meat to the bone. And on Real Estate, we're going to be investing this strategy over time. It's really a joint venture where our partner is going to be somewhat more operational and we're going to be more strategic. But it's something that it's a sector that we know very well. We've done similar investments also in France in either assisted living or low cost living. And we believe that whole segment within our strategy of sheds and beds, this is obviously within the bed strategy and we find it to be quite exciting. We have another question from the line of Mike Werner from UBS. Please go ahead. Thank you very much. Apologies if I misread this year, but I was just curious with regards to the waivers on the lockups of the shares related to your discontinued businesses, you expect shares up to about 1.5 percent of EPT's capital base to be sold. Do you have an idea from a timing perspective? Is that something we can expect between now year end? Or is it something that we can expect more in 2021? Thank you. And sorry, just do we expect this to be done in a single process? Or is it something that could be done on a rolling basis? Thank you. Olof? Sure. So this relates to up to 1.5% of the share capital. So it may not necessarily be that full amount. I think once we know exactly how much will be sold, we will take final decisions in terms of exactly how we execute that. I think what we've said is that it will be a process that we coordinate from EQT AB and we will do it in a way that we think is in the best interest for the share. And it's also an opportunity to on the margin improve our free float slightly. In terms of the timing question, again, I think it will depend on various factors, but we may release some of those shares into the market before year end, as you said, yes. Thank you. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Thank you everybody for participating and listening today. Thanks for, as always, very good questions. We appreciate the support and have a great day. Thanks a lot. Bye bye.