Earnings Call: Q1 2020

Apr 24, 2020

Hello, and welcome to the EQT Quarterly Announcement for January to March 2020. Throughout this call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded today. Today, I'm pleased to present Christian Sending, CEO. Please go ahead with your meeting. Kim Henriksen, our CFO and also Casper Kallstrom, our COO. And after the presentation, we'll open up for a Q and A. Now taking a step back before we start the presentation, we hope you're all well and coping during this challenging period of time. Nobody knows when we'll be back to normal circumstances or what the new normal will look like. But one thing is for sure, we can all contribute as humans, as business leaders and also as members of society. And I also want to thank all the persons who are on the front lines of this crisis helping everyone out in this difficult time. For EQT, this actually means that we keep doing what we do best, which is invest thematically and support our companies to improve and stay relevant for the long term and create value for society. As you know, we're driven by our purpose of future proofing companies and making a positive impact. And in terms of challenges and disruption, we believe this is actually very crucial, and we have a real responsibility there. So with that, I'll start with the formal presentation. So if you see that on Page 2. Then I will start here with some overall comments on the current markets. Certainly, we're in an unprecedented situation. The markets around the globe are quite volatile, obviously coming out of this global pandemic. We have restrictions in many countries that are closed down and with governments and central banks across the globe taking really strong response measures and helping society cope in this volatile period. We believe the key is in this situation to have a broad stakeholder approach and a long term perspective. We're trying to be thoughtful, take quick and relevant actions and also to safeguard our values and culture. Now as with any crisis, there are of course also a number of opportunities, including the opportunity to come out stronger for our companies and for ourselves after the crisis, while at the same time paving the way for a more sustainable tomorrow. If I look at the firm, the impact on EQT really depends on the magnitude and the timing of the crisis and how long it lasts. So we're still hoping for the best, as I said last time, but continuing to prepare for the worst. Our business model itself, of course, is relatively strong through its recurring revenue base and the long term trends supporting our industry. If I look at the underlying portfolio companies of EQT, all the companies are in some form affected, some very negatively, some in a more neutral way, from even positively to a certain degree, depending on, for example, our 1 retail investment, which is quite challenged, to a number of digital business models, which are, of course, delivering essential services to society at this point in time. And given our thematic investment strategy and our strategy of future proofing companies, if one looks at the overall EQT portfolio, it remains relatively robust. As you know, based on experience from previous crisis, we've been preparing our portfolio companies for a downturn for some time. Obviously, we did not know about the magnitude or how or what was going to happen in the next crisis that we're now experiencing. But the fact that we had these contingency plans in place is really helping us respond faster in all the companies and make sure that we're handling our businesses, our customers, our employees and all stakeholders in a good way. And we'll have more details on the portfolio a little bit later in the presentation. Now if you look at what we're doing otherwise, together with the portfolio companies, we've actually taken, I think, quite a good amount of actions to help out in the current crisis. We have on our website, you'll see lots of great examples of our portfolio companies contributing locally or internationally to the crisis, like for example, Lima in Italy that's restructured their operations to deliver tubes for ventilators in Italy and lots of great examples like this. That makes me quite proud. We're also doing a lot of things across our offices in our 19 countries where we're present with creativity and empathy. Secondly, the EQT Foundation has announced its first initiative that we've donated from the foundation to the COVID-nineteen therapeutics accelerator. This is launched by, amongst others, the Bill and Melinda Gates Foundation to support research related to developing and scaling up potential COVID-nineteen vaccines and treatments. And thirdly, management of EKT has also contributed to substantially improved testing in our headquarter country of Sweden. So with that, I'll go to the next slide and talk a bit about our investment activity. Of course, the investment activity level has been slower since the COVID-nineteen outbreak. In the first half of the quarter, we did several fanatical investments, including Deutsche Glastfasser in Germany and O2 Power in India, both done in the ETT Infrastructure IV fund. And in total, ETT has invested more than SEK1.8 billion in Q1. Furthermore, in early April, ETG8 announced the acquisition of Schulke, which is a leading provider of hygiene and infection prevention solutions. This investment is quite interesting, and it's very much in line with our thematic approach, which is guided by the United Nations' Sustainable Development Goals. In this case, specifically SDG 3, which is good health and well-being. And this company, of course, now is contributing to society in a very essential way. We had followed this company for quite a long time, and it's very topical now in the midst of the COVID-nineteen crisis with delivering essential products to hospitals in the German speaking region around the world. I think it illustrates our execution capabilities and the fact that we can deliver a solid offer to a seller and help the management come into the new ownership in a good and positive way. So we're very bullish on this long term investment and are happy that we were able to make that happen during this complicated time. Now going to our valuations. At the end of Q1, our key funds are down on average approximately 5% in valuation versus the end of 2019. And it varies a bit across the funds with EPT-seven being the fund, which is most among the key funds. We have received a number of questions on our valuations, so Kasper will go through that in more detail later in the presentation. When we look at the expected returns for our key funds, we still expect that they're going to deliver according to plan in terms of multiple of invested capital in Private Equity and in Infrastructure 2 and 4 and above plan in terms of multiple invested capital in Infrastructure 3. And this is the same outlook that we gave in our Q4 presentation. Nevertheless, it is important to stress that very early to quantify the full impact of our portfolio companies in this terminal. And even though we expect similar end results at the end of the day for the key funds, it will take longer time and therefore will also have some impact on our IRR. Moving on to fundraising. As we previously announced, the hard cap rate decline is set at $15,000,000,000 and that fundraising is ongoing. And due to restrictions from marketing, we cannot comment anymore on that. As also mentioned earlier, infrastructure is exploring various alternatives to raise additional capital, and now also including starting preparations for Infrastructure 5, which could be launched during H2 2020. Finally, as a firm, we're continuing to build the business. We are now over 700 employees, and we're continuing to invest in our business for the future. However, given the uncertainty that we see around us, new recruitments are currently on hold, paused, as we say. Next slide, please. You've seen the slide before, but we want to take a step back and focus on this, that we're on a long term journey. We continue to have the ambition to grow and develop EQT for the long term. And then we have come quite a long way from the Nordic biotron to a global diverse and multi strategy private markets firm. We also have experience in 25 years of cycles with a number of people at ECP having been here since inception, including Connie, Thomas, Frederick, etcetera, and also Casper and I haven't been here since 'ninety six and 'ninety eight, respectively. So we've lived through a number of different disruptions, and that's going to help us along this bumpy road that we're on. And it also enabled us to, for example, be prepared early for whatever was coming, as I mentioned earlier. And if I take a look back during the financial crisis, after that, many competitors actually reduced their fund sizes, but we came out of the crisis actually stronger with larger funds than previous one. And also during that time, we started our infrastructure initiative, which is now obviously one of our flagship funds. And I think this is a good example of the kinds of opportunities that can arise from a crisis when you get the right people and the right strategy in place. Good. I think with that, let's go into a bit more on how COVID-nineteen is impacting EGT. The next slide, please. And this is on EQT AB first. Certainly, as we talked about, the worldwide spread of COVID-nineteen has created a global economic disruption and also a lot of uncertainty. So it's hard to predict and probably too early to quantify the full magnitude of the business and economic ramifications. But of course, the duration of the pandemic and the duration of the lockdowns and how we come out of that are key factors. We run a number of different scenarios in these cases. If I start with the fundraising side, we expect that fundraisings will take longer and also be more challenging in the current market environment. This is especially true for smaller and newer initiatives where fund investors need to meet with the teams, get to know them, do more due diligence, etcetera. So even practically, everything is a little bit more complicated. On the investment side, the pace is also impacted, as I mentioned, and we will continue to be highly thematic and very diligent in our approach. And I think the Schulke transaction is one which is an example of the types of deals we've been looking to do in this market. And for EQT funds, looking at exits, these are also less likely for most assets until market conditions stabilize again. What happens during a crisis like this is that the bid ask spread for companies, even high quality companies increases, and therefore it's difficult to get sellers and buyers to meet. Furthermore, the financing market is also much more complicated to work with during disruptive times. Now having said that, we have a very young portfolio actually across investment strategies with an average age of our companies of 2.5 years in our key funds. Also, our oldest portfolio company is about 8 years old, which is anti Semix AQ6, which is a very strong performer. So what's important with that is that there is no pressure on us from our fund investors to sell or make exits during this time. Also, just a reminder, and we come back to that as well, under IFRS, carry recognition will require both an underlying positive development in fund valuations and or exit of portfolio companies. Kim will cover that again. Finally, the EQT has a strong balance sheet, and we have a liquidity position with more than €900,000,000 in cash, which is good, especially from a long term growth perspective and also for our ability to take advantage of this market to continue to develop EQT and drive strategic initiatives, which Kasper will come back to shortly. Next slide, please. On the portfolio companies, in our key funds, we invest in health care, T and T, essential services and essential infrastructure to society as well as industrial tech. And we have a strong focus on non cyclical companies driven by long term macro trends trends, secular trends, such as digitalization, sustainability, healthy living, etcetera. So if you look at private equity, 90% of our portfolio there is in the 3 core sectors, being healthcare, TMT and services. And many of the companies have features such as being an essential service, having quite predictable cash flows and also long term business models, such as, for example, some of our healthcare IT companies like Waystar or Shatara. If you look at our venture investments, overall, given that they're all digital business models, many of them and most of them are actually performing quite strongly during this fiscal period. In infrastructure, more than 50% of the portfolio companies there are in fiber optic broadband investments, and the remaining are in other essential services. And we only have 1 company in the energy space in that. Having said this, it does not mean that our portfolio companies are not impacted. Several of them are, of course, highly affected, and many of them are affected in some way. So we do estimate an equity need from our support with equity, and about 15% of our portfolio companies in the key funds. And we believe, as we said last time, that we will need committed capital of around 5% from our key funds to support our companies. And this is from what we know today. Good. And on the preparations for downturn, there's a couple of more comments. What we did there was really prepare each company in terms of governance, in terms of actions, in terms of working capital, liquidity, etcetera, to make sure they knew what to do when that crisis would hit. We've also refinanced a large part of the portfolio across the key funds over the past years, removing covenants and pushing out maturities and creating more flexibility for the companies to both grow and develop and or handle a more difficult period as we're in now. And we do have enough fund capital to support our companies as well as to capture opportunities that might come out of this current situation, including Adam acquisitions. So given this relatively solid base, we are working also with some new transactions, and hopefully, we'll be able to continue to make some investments during this period, even though it is a complicated time. And one of our most active funds, of course, is our public value fund, which is investing in the public markets in the Nordic region. So with that run through, I will then hand it over to Casper, and he'll continue and we'll be back with Kim after that and finally G and A. Thank you. Okay. Thanks, Chris. Next slide, maybe. And like Chris mentioned, reflecting on the current market environment, this pandemic is impacting every business across the globe, and EQT is no exception to that. But that said, our long term strategy remains unchanged. Execution of that strategy may, however, take a little bit longer than we anticipated maybe half year ago. And I'll give you a brief update on that and the components. So on growth, like we've mentioned before, this is a part of private capital and an opportunity to invest in the market segment between private equity and ventures. It's an area where we feel that there's high strategic logic to us. And given our strong both private equity business in the Europe and the U. S. And very high performing venture business, I think we are fairly unique to capture and develop this aspect of the market, and we continue to believe so. So we believe in this strategy, and we're continuing preparations, including building up a team, including setting the investment strategies, and we are in early phases of reviewing this in this strategy. However, this will be done at a slower pace due to the current circumstances. So we don't expect to be up and running with this during this year, but that gives you maybe a feeling for the timing. When it comes to Asia Pacific, as announced earlier, we opened up our Sydney office in February, and Asia Pacific is still a very strategic area of growth for us. Growth in Asia Pacific will take time, and it's focused mainly on what we have there on the infrastructure side as well as over time building a stronger private equity business in the existing markets that we have, but also exploring new markets in that region. On the real estate side, preparations for scaling our real estate business is ongoing, but new initiatives will also there take longer time. What I can mention is that the fundraising of real estate too is still ongoing, but we expect to have a final close on that during Q2. On M and A, although the main focus at the moment is on our current business and current portfolio, The market dislocation and the turmoil that comes with it may present attractive investment opportunities for us over time. So we continue to monitor this and pursue certain ideas in this area. On the credit side, as you know, we are reviewing our strategic options when it comes to credit, and we are still expecting to revert back to the market before summer on the outcome of that review. So next slide, please. We have received some questions regarding how our valuation process works. So I'll provide you with a quick overview and hope to shed some light on that subject. So our valuation process is robust and consists of several valuation methods based on market practice and ITAP guidelines. I think the 3 pillars of that would be listed peers, so like normal peer review, but also comparable transactions with comparable companies in the private markets and various ways of doing DCF. And typically, there's also a combination of these methodologies used when valuing a company. The assets that we hold are normally long term private markets portfolio companies, average holding periods of 4 to 6 years, where value is created over time. And valuations are normally down with respect to the value of a whole company and not a marginal share in a listed company. This means that the values of a whole company is typically more stable than a typical share price. And valuations are scrutinized from several angles to ensure that we give a fair view with the information known at the time. And as part of that, valuations are also audited on a biannual basis. So with that, I will hand over to Kees. Thank you. May I ask for the next slide or actually two slides forward, one called our business model is long term, simple and scalable. I'd like to start with this page, which I have shown before just to reiterate that our way of thinking about the business remains. EQT is a performance driven firm, which means that everything we do starts with generating good and consistent returns to our fund investors. And that is as true now as it was 6 months ago. So we are convinced that these good risk adjusted fund returns compared to the alternatives available to our fund investors will drive growth in our assets under management. And growth in our AUM will, as a result, generate income for us. Management fees, carried interest and investment income revenues to EQT AB. As you know, the management fees, they are essential part of the long term business model we have. And our cost base is mainly our people and other costs driven by the number of employees. Next slide, please. So value creation remains relatively stable during Q1, Louisa. And as mentioned, on average, the like for like value decrease during the quarter is approximately 5%. But of course, it differs across funds. But so while realizations, exits are expected to be delayed and take longer in the current market environment, the long term value creation expectations remain, and all key funds remain at least on plan, while Infrastructure 3 continues to remain above planned. And as a reminder, the way we have defined on plan is as a gross Moik between 2 to 2.5 times for private equity and 1.7 times to 2.2 times for infrastructure funds. Next slide, please. Our AUM is largely unchanged from Q4 2019. So also if you look at it across the last 12 months, which is a more relevant period given our long term business model, the AUM is largely unchanged. However, during that time, we have increased the AUM with approximately EUR 3,000,000,000 whilst also exited companies in older funds where the fee base is the invested capital. And again, as a reminder, our definition of AUM is such that only assets assets under management, which provide recurring revenues to EQT AB. Next slide, please. And that brings us to a carry update. And as mentioned by Chris earlier, carry recognition will require both an underlying positive development of fund valuations and typically also exits of portfolio companies. And I reiterate our rule of thumb here that initial recognition would commence once we have reached a gross MOLK of 1.7 to 1.8x and including typically a few exits. And this would normally be 4 to 6 years after the first investments. So the 2 key funds in turn to start generating carry according to the IFRS are EQT7 and Infra3. And for EQT7, our current gross moiQ is 1.6, and we've had 3 exits. And for EQT Infrastructure 3, our current gross margin is 1.5 times and we've had no exit so far. So as you've heard, the exit environment is not as supportive as in the beginning of the year, which we expect to impact the timing of recognition of carried interest as well. But as per the previous slide on our expectation for the funds, we are still on plan or above plan to reach our gross MoIP targets. So this is a delay compared to our earlier plans rather than a change. So let's just take EQT7 as an example here. At year end, we didn't have any IFRS carry from EQT7 when MoiQ was 1.8x and now it is at 1.6x. So like for like, the portfolio is down in mid teens in percentage terms. So in order to recognize carry in 2020 from IKG7, we would require both some exits and an increase in value to more than compensate for the recent reduction. So everyone can draw their own conclusions from those facts. Next slide, please. As before, the headcount of EQT is a reasonable proxy for our cost base. We have during the quarter added a total of 25 FTE plus as we call them and are now at 7.30 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 Es as of the end of the quarter. As mentioned earlier, currently the hiring is expected to take longer and we've also actively decided to pause most recruitments unless they are highly strategic in line with what Kasper mentioned here on our strategic ambitions. That said, during H1 2020, we expect the number of FVs to increase still because it includes signed candidates that are expected to start during this period. But after Q2, at a much slower pace than at the beginning of the year. With that, I'd like to hand back to Chris for some closing remarks. Thank you, Kim and Kasper. On the final page is our financial targets and dividend policy. And I'd like to highlight the bottom of the page first. These targets should be considered over a fund cycle, so they are long term targets. And starting with growth, our target is that our total revenue growth will exceed the private markets long term growth rate. Our target on profitability is that we expect our adjusted EBITDA margin to be between 55% 65% over the long term, And that, of course, does include some income from Kari. And finally, our dividend policy is to generate a steadily increasing annual dividend in absolute euro denominated terms. So with those final comments, we will open up for the Q and A. Thank The first question we have is from the line of Magnus Andersons from ABG. Please go ahead. Magnus, please go ahead and ask your question. Yes, okay. Just on the fundraising, you said that it might take longer in this environment. I was just curious, is it primarily the fact that you are not available to have physical meetings, which you alluded to in some smaller strategies, for example, that they have to meet the investment team, etcetera? Or is it also allocation decisions your LPs or general uncertainty? Can you rank the factors so that I understand what is really driving this? Yes. I like your question. I'm not going to rank it for you, but you answered it yourself. It is all the above. It's the practicalities of having to do due diligence on EPT remotely rather than being able to meet in person. So that means things take a little bit more time. Now we're we have a strong digital setup. We're completely in the cloud and everything we do from our operations to our deal making. So that's facilitated, but it's complicated anyway. And then of course, in the market, as has been reported on and some of the private equity press, LPs are depending on their portfolio and their strategies, also sometimes taking a little bit longer to take decisions or reallocating some of their capital, etcetera. So all these elements together are contributing to the fundraising that takes longer. Okay. And then I might have missed you, Kasper. Just on Slide 7 there, you were talking about EBIT growth and discontinued preparations but with the longer rise. Did you say did you indicate that you would not do any fundraising, most likely not during the remainder of 2020 or because I didn't hear you? What I said was that we don't expect this to be up and running during 2020. Okay. Okay. And then on just on Slide 6 there, you said that you talked about the roughly 15% equity need in portfolio companies in your key funds. Is that identified for is that you in 2020? Or should I think about that? Or is it now immediately? Or Yes. It's well, we what we do is we run different scenarios. We run the call it a more positive scenario, kind of a medium scenario and then we run a real downside case for all of our petroleum. The reason this number is based on a medium scenario. Okay. Okay. And then on the 5% need required of your dry powder. Is that that conclusion, how did that look, for example, in the previous crisis some 10 years ago? That's Can we draw any parallel source? It's very good, but of course, EPT is very different, that's why, because now we're we, of course, have in terms of the key funds, we also have our infrastructure funds, which are large and stable as well. But I would say generally, maybe Casper wants to add a comment, but generally, we're in better shape now than we were at the previous crisis because as I commented on in my part of the presentation, we've been really working with our capital structures to stretch them out to create more flexibility, less covenants, more liquidity, etcetera. So we have longer runways before we need to bring in new sources of capital to the companies, everything else equal. Of course, the crisis is very different, but other than that, I think we're in better shape. And then, Kasper? Yes. I think maybe just to add that the portfolio composition back then was very different. We had much more concentration in certain portfolios. And therefore, in certain funds, we basically didn't have the capital available to save all the companies in that particular fund. I mean, more or less, I don't think we're at that we're not at that situation now. So it is a bit different. In terms of the capital need, I wouldn't know if it's similar or on average similar or less now. I would guess it's less, but I wouldn't yes. Okay. And then just finally, you were talking about in connection with the Q4 report of a potential bridging of the Infra 4. Is that still going on, still valid? Or any update there for bridging, exactly what we did? Yes. What I can say is that we're working on continuing to work on bridging, but we're also starting to prepare for the fundraising room for 5. And more details, I can't give you right now because of the restrictions that we have. Okay. That was all for me. Thank you. Thank you. Thank you. The next question we have is from Liz Miliatis from Bank of America. Please go ahead. Good morning and thank you for taking my questions. I have 2. Firstly, on EQT9 fundraise, when you're talking about it taking longer, based on your discussions and your feeling of the market, do you think it will be maybe 1 month longer or twice as long? If we will get a sense of exactly how much longer, that would be awesome. Yes. Thanks for the question, Liz. We I'm not going to give a time line because it's I'm not allowed to talk about fundraising in and of itself. But it is taking longer time. Having said that, I could flip it around and say, we started preparations early last year, let's say, middle of last year. And I think we started talking about it in the market during the fall. So there's a long pre marketing period. We formally started the fundraising in January. So we've done a lot of work on it ahead of the crisis, which, of course, is beneficial in terms of driving towards the close. But it yes, I can't say anything else from that putting everything together versus a normal period will take a longer time. And there are some investors that just need that extra time to commit. But we're well prepared and well into the process. Okay. And then secondly, on valuations and the gross mix on the flagship funds, some came down. I was a little surprised that some didn't come down further. And I appreciate your comments about it's a very resilient thematic portfolio. But just if we could get into the nitty gritty of the valuations, if possible, a little bit more. Do you think we could see potentially a bit more pain on gross margin maybe in Q2? Obviously, without guiding us, but a little bit more pain as we understand this crisis a little bit more and as things develop. Do you use forward or historical earnings when you're looking at valuations? And then thirdly, you mentioned that transaction multiples are one method that you use when valuing assets, but I suppose transaction multiples are almost irrelevant at the moment. So some of the valuations in the current portfolio still using that method or is it all based on earnings or DCS? Casper, will you take that one? Yes. It was many questions. I don't think we will go into the depth of the granularity of the value iteration of each fund. But what I can say about methodology is that I think we are using the methodology that I described, including comparable transactions. It doesn't mean that we are not we're not going to sell these assets in today. We're going to sell these assets in a sort of normalized environment. And I think having comparable transactions will always be a part of the tool set when doing valuations. And as I pointed out, the pricing of a marginal share is maybe not the best proxy for valuing an entire company. So we use a combination of these methodologies throughout the portfolio. Okay. And just a follow-up question. I know you can't guide, but do you think that there might still be some more pressure on valuations? I think that the valuations that we do, we do after per quarter end, and that was what we believe to be the term fair value at that point in time. It's very difficult to say what that picture will look like months down the road or 2 months down the road. But it's not that we take this in steps and that we foresee further development. I think it's fair to say that we've taken quite large in some assets, quite large write downs of values depending on quite large impact of this current situation, whereas other companies have been less affected. Now if it turns out that some of the companies that have been less affected are more affected, we would obviously have to bear the consequence of that. I think that goes for the stock market as well. So I don't know. It's the honest answer to that. But what I do know is that it's sort of our best effort when it comes to the Q1 where we were at the 31st March. Okay. Thank you. I very much appreciate the color. Thank you. Thank you. The next question we have is from Arnaud Giblard from Exane. Please go ahead. Yes, good morning. Ana Giblais from Exane. A few questions, please. Thank you for the slide on the appendix regarding how management fees are earned. I just want to clarify one point. If I understand that well, the only 2 driving elements to determine management fees on Fund 9 will be the timing of the initial close and the amounts raised by the end of the year. And the timings of other second, third closings in between don't have an impact on the management fees and in 2020. Is that right? Chris, may I comment on that? With regards to the size, it is what? For 2020, the management fees will be dependent on the size, but has been closed out during 2020 because that will then there will be a catch up for that during the course of the year. And with regards to the timing, it is a question of when the predecessor fund is closed for investment and the new fund is open for investment. That's the timing for when from when the management fees will be calculated. That's great. Thanks. And secondly, I was wondering on the, I mean, corporate M and A side, you talked perhaps of opportunities of this location coming from the dislocation. I mean, surely, I assume any potential seller will be thinking long term as well. Do you think that there really have been some big marked changes in valuations for potential valuations for some potential targets that you might be looking at? I can take that one. Go ahead, Casper. Yes, I can take that one. I think that I don't think that we were not really alluding to that we will be able to do sort of bargain buys. That's not really what we're saying. Maybe it came out a little bit wrong there. So I mean, what we are saying is that, in my view here, is that I think tougher times will also make it even more advantageous and important to be part of a larger group than to be sort of a stand alone smaller, maybe more local player. I think the advantages of being in a larger group with everything that comes with that will be highlighted even more. And therefore, I think these tougher times will maybe drive some of those founders and owners to pursue M and A more than they would have done before. Great. Now I had a last quick question on new deals. Could you comment a bit more about what funding terms are available to do new deals? As I understand, the credit markets spreads have blown out and haven't come back in yet. Is that something you might be experiencing on new funding? Yes, I can take that one. It's complicated. What's if you're looking to do a large syndicated transaction today, That's very difficult. The secondary market is trading depending on sector between 0.80 dollars something on the dollar and maybe $0.95 on the dollar still and in a still volatile times. So that's a bit more, but that's a very complicated funding source right now and probably unlikely in the short term, unless there's a very, very unique situation. But having said that, some of the of our relationship banks are strong and supportive. And also like we did in Shirkuh, the private debt market is very active. So the private players are also available to support the financing. But if I give the example of Surete again, the leverage that you would achieve and actually want to have in the kind of market we're having today is also lower. So quantum is lower, the financing structures are more conservative and the sources are slightly different or are clearly different than in a typical market where you'd have high yield syndicated loans being more available. Okay. Thank you very much. Thank you. The next question we have is from the line of Petr Kosciuszko from SEB. Please go ahead. Yes, thank you very much. A lot of good questions have been asked already, but a few, perhaps, detailed ones. And perhaps just a follow-up on one of the last questions asked and on the funding markets. How vital is it for you for the kind of the market of larger syndicated loans to be open in order to kind of conduct the strategy that you are aiming for? It's I'd say for the very, very large transactions, that makes it more complicated right now. But for the medium sized transactions, like Schulke was close to EUR 1,000,000,000, it's no problem to or no problem. It's more complicated, but it's possible when you work, you got close relationship and you work together with your financing partners. And EKT has a lot of experience and we're coming from different kind of financing structure historically where we very often used worked with our relationship banks, used what we call club deals with a number of relationship banks coming together to support the financing of the company. And we would commit more equity capital typically in a market like today. So there are other solutions. But for the very large deals where the syndicated loan market is necessary, that will take a little bit of time. Okay. Then I just had a question on the equity injection need that you mentioned earlier and what you've seen so far kind of, does that have any when that's done, does that have any kind of tangible impact on the valuations that you will set for the individual companies? Or is that completely unrelated and you've already taken the equity need into account as it looks now? Jesper? Yes. I think I mean, typically, what you do is when we do when we support a new company with equity, it's not always in the form of equity. So we can do an injection. It could be a loan to the company. But if it is equity, it's typically then done as any normal company, I. E, at you issue shares at the current market value. So it should not affect the market values that we have here, which means that if we have a company that has not done an equity injection, it will be done at the current value and the new money in will be valued at par at that point in time. So I don't know if that answers your question. Okay. All right. But does that mean then that the gross margin comes down or Well, I mean, again, we said we're talking about less than 5% of the fund capital. So but obviously, the money that comes in is valued at 1.0, right, because it's valued at 1. And so there would be a slight dilution mathematically. But in the grand scheme of things, it doesn't really have a big impact. Of course. Yes. Just trying to understand the dynamics there. And then just some detailed questions. Just on the bridge and on the infra side, I think previously you mentioned could it be that maybe 10% of the ambition of kind of the upcoming infra fund or something similar, which would pretty much result in a bridge amounting to maybe EUR 1,000,000,000 to EUR 1,500,000,000, if I remember correctly. Has that the size of it changed given the current environment? Or is that unchanged? Yes. It's I don't actually want to comment on that since we're right in the middle of the fundraising process. What I can say is that, ITG infrastructure is 70% to 75% invested. And there are 2 alternatives, which can either be complementary or you choose one of them. And that's the bridge and or starting the fundraising win for 5. And depending on timing of investments and the timing of the fundraising processes of those 2, we'll decide which way to go. So no decisions have been taken yet. Therefore, I can't comment in more detail. Okay. Thank you. I'll just shoot 2 quick final questions then. The first one is, Kim or well, both you, Casper and or Kristian or Kim mentioned in terms of the pause in FTEs, but you will still have a growth in FTEs during Q2. Is it possible just to give a number on how much FTs will increase during Q2? Well, it's a net number, of course. And one element of that, which we do not know is or one element is unclear, which is how many will leave, etcetera. But if you assume that the pace during Q1 continues still during Q2 because anyone who starts in Q2 will have been signed prior to the pause. That's a fair assumption. Okay. You know what, I think I'll stop there. So thank you for that. Thanks, Peter. Thank you. The next question we have is from the line of Gerardo Brink from Nordea. Please go ahead. Thank you and good morning. Sorry, I just want to come back one more time to Infra V. I think, Christian, in your preliminary speech, you mentioned just looking at the live script here, you mentioned something about you were in preparations for Infra5 and it could be launched in the second half of the year. So just to understand exactly what that means. So you're now in preparations or will you be in preparations and year? And when you start to launch the fund, does that start to launch fundraising? Does it mean to launch investments? Good question. So right now, we're in preparations. So we're starting to prepare. And we may launch the fundraising in the second half, which would mean the formal launch as we did for ETT-nine in January. That same type of launch could happen in the second half of this year. So that's how I would answer that question. And then fundraising, just please remind me, how long time has that taken in sort of periods like this typically or historically? Yes. That's a good question actually. I would say looking at the market and looking at EQT in a very strong market, fundraisers take 6 to 8 months, something like that. And in a weaker market, they might take up to 12% or something like that. So it's this is not an exact science and it depends on a number of different factors. But there is we're talking about several additional months. Okay. That's very clear. Then on EQT8, you're 70% to 75% invested by now. Again, as you've pointed out a few times, there's not so much deal making going on in these markets. And I guess you need to go to what is it 85, 90 before you would launch EQT9. That's correct, right? So basically you need to invest sorry. No, Anshoom, go ahead. You can finish. No. So basically, just if you're at 70%, seventy 5% now and you need some 15 percentage points extra, that would be €1,500,000,000 So when do you think you can find assets to buy worth around €1,500,000,000 How long some will that take in these markets? Yes. It's more dynamic than that. 70%, 75% was given that we've also now signed the deal for Schulke, we're very much in the higher end of that range. We have 15, 16 portfolio companies, something like that in ETT8. And a number of them are doing add on acquisition. And therefore, typically in those portfolios where we have a lot of add on acquisition potential, then we close the funds when they're somewhere between, let me say 80% to 90%, but it's probably closer to the 80% to 85% type of level for those funds that have a lot of add on acquisitions. So that's why we say 80% to 90%. It depends really on the portfolio constructions and the opportunity to build on the current businesses that we do own. So we expect to do, let's say, 1 or 2 more new investments in ETT-eight until yes, and then thereafter, we would start investing from EKG9. And of course, it's very difficult to speculate on when that will happen. Yes, I understand. And then the last question from my side. On the I think in the March call you did, you mentioned that you were under no pressure to start selling assets in these markets because you had strong IRRs. Could you maybe give us a bit more flavor on how long time can you actually wait before you need to start thinking about selling assets? Yes. Good question. Our fund structures are 10 years plus 2 years of extension. And then you can even extend beyond that in certain circumstances if it's required. So we have plenty of time to work with our portfolio companies. The oldest fund that we have a couple of companies left in is ETT VI, and that's a 2011 vintage. So then we're up to the end of 2023 before any further extensions. And as you know, that has from an EKG AB point of view, the EKG6 is relatively small. So for the rest of the key funds, we have many, many years to go. So we're very comfortable with that situation. Okay. Thank you very much. Thank you. The next question we have is from Roberta de la Lucca from Goldman Sachs. Please go ahead. Hi, good morning. Thank you for the time. I have a few questions. The first one is I'd like to understand maybe a bit more the impact of the global realization of EGT6 on kind of second derivative. First, I remember at COO, you mentioned that for EGT9, you were kind of accelerating the well, you kind of needed the resources from EGT6. So I just would like to understand whether any delay in this actually means that you wouldn't have the resources for the deployment of IGT9? And then on the other side, on the fundraising, if any capital from IGT6 needs to be freed up before clients can commit for IGT9? Yes. It's an interesting question. I don't the remaining capital in the EBITD6 is relatively small. We've all I don't have the number right in front of me. Maybe Kim can bring that up. We've already delivered closer to 2x the capital from that fund to our investors. So the remaining investments there, we don't expect to have a material impact on the fund performance and therefore also is not really connected to ETT9. So yes, that's how I'd answer that question. Okay. Then maybe if you can try to help us understand how we can bridge the data that you give. So you say that about 15% of the companies needs capital And you only have a 5% and that's based basically on your, let's say, base case scenario from what I understand. But then you have about 5% negative impact on the portfolio. And obviously, I know you wouldn't comment on competitors, but just to give you a bit of background, I'm sure you've seen peers reporting earlier in the week, they have reported about more than 20% negative impact. So the 5% negative impact strikes us relatively aggressive, but maybe there is something that you can highlight as to why it's only 5%. Casper, do you want to take that one? One? Yes. I think I'm not sure if we compare apples to apples here. But basically, so when we say 15% of the companies will require capital and up to 5% of The other thing Chris mentioned was that in terms of valuation, we are across the key funds approximately 5% down in Q1 versus Q4. And I was then interpreting your question as some of the peers have more bigger drops in terms of valuation. Of course, I cannot really comment on their portfolios, but what I can say is that if you look at our portfolios and you look at the exposures we have in industries, I think we are compared to the market, so to speak, underweight some energy sectors, some retail sectors, etcetera, which will have more significant growth. We have our small share of those as well, and there we've had significant drops in values. But we since we have fewer of those assets, the impact on our overall portfolio will be smaller. Okay. Yes, of course, I mean, it's not upper to upper, but still thinking that 15% of the companies needs capital and only and then the valuation downside is 25%, it's striking, but I understand it's not apple to apple. One last question, if I may. Maybe specifically on EQT6 again. The negative impact on the MoIC there is relatively low. But looking at the companies you have there, there are quite a well, there are some companies which I would expect to be impacted, like Nordic Aviation Capital or Flying Tiger. Is there anything specific that you can say about the performance of these companies? No, I think we will not comment on individual companies. But of course, I mean, the travel sectors and the retail sectors are sectors that are badly hit, and that is also reflected in the valuation of companies in those sectors across our portfolio. I can just add to that. In the like I said earlier, EQT VI is a fund which is by far the majority companies have been realized. So the remaining capital in that fund is relatively small. Therefore, any changes in valuation of that remaining small amount of capital doesn't have a big impact. That's how they explain Page 11 a little bit. Thank you very much. Thank you. The next question we have is from Gurjit Campbell from JPMorgan. Please go ahead. Hi, good morning, gentlemen. Just a couple of questions to follow-up. Firstly, in terms of the fundraising, potentially launching the infrastructure Fund V in the second half same time. So just really understand why you would be prepared to do that. Have you got the capacity to do that? That's the first one. Secondly, just on sort of new growth initiatives, obviously, ventures and public you mentioned in the past, just are you still on track to look at investing in those areas? And just on secondaries, are you seeing bigger opportunities in the secondaries markets? I would have thought that would be quite interesting at this point. And then last one, just on can you just remind me what the dry powder roughly is in the business at the moment? Thank you. Thanks, Georgiou. I'll take the first couple of ones and then Kim can take the dry powder question. So the fundraising point, as we talked about, what we didn't want to do was to we preferred not to raise Fund 5 for infra and Fund 9 for equity at the same time. That would have been same time would have been launching in January. But now, as I explained earlier in the call, we've come quite a long way on our EKG9 fundraising. So therefore, we're ready, we have the resources, we have the capabilities to start preparing for Fund 5. So they become they basically become sequential or as close to sequential as you can get and not completely parallel. So that's the that makes hopefully that clarification. And then Ventures and Public Value. Ventures is on their 2nd fund, which we raised last year. And the first fund is continuing to perform very well also in this during this time, as I mentioned, because of their digital business models and really investing with future themes. A lot of those themes and trends will be accelerated now in the crisis. And we also believe that they will those trends that were existing before the crisis, whether they were relating to sustainability or digitalization, whatever it might be, those are going to be accelerated after the crisis and others will also be accelerated maybe in a more negative way possibly relating to oil and gas, etcetera. But anyway, so ventures is very thematic and investing in that world. Public value is also now has been investing for more than a year and has is in it's the only fund that we have, which is an open ended fund. It's kind of a hybrid between a hedge fund structure and a private equity structure, the long term commitments that is open ended. And they're, of course, quite active in the market now looking to partner with interesting companies. And on the secondaries, we don't have a secondaries business, if you mean sort of actual secondary buying, secondary portfolios, etcetera. If you're thinking of secondary buyouts, we're always looking at all sources of deals, whether they're from private equity or families or public to privates or whatever it might be. So I don't expect there to be any particular any one of those areas being more active than another. It's really case by case, I would say. And Kim, maybe you can talk about the other question on capital. Yes. With regards to dry powder, the information we would typically give is that we are 70% to 75% invested in the key funds where we are currently investing out of. And we have also said that we have sufficient capital support the companies that need it up to the 5% that we have said that we may need in total. Thank you. That caller has disconnected. We're now moving on to Bruce Hamilton from Morgan Stanley. Please go ahead. Hi, morning guys. Thanks for taking all the questions and thanks for the color. So just 2 for me. 1, just thinking about the topic of sort of government coronavirus aid, obviously, there's been a bunch of press reports in the U. S. Saying that private equity wouldn't have access. But in terms of how you think about government aid, is it completely academic because you would never take it because of the reputation you'll hit? Obviously, at the moment, your portfolio, it sounds like you're pretty confident with the dry powder you can support companies you need to. But I'm just interested in how you think about kind of that topic and whether the industry as a whole will get access. And then secondly, on relevant specific fundraising of your funds, but I guess in conversations with LPs, is there any change in their thinking around allocation? Again, anecdotally, I guess, because of denominated destruction in parts of their public equity portfolio and or because they'd be drawn on commitments as key firms that look to support portfolio companies. Is there any sense that there may be a reluctance or that growth trend changes? Or is it just a pause and then we sort of return to the allocation story because people need to make up the unfunded pension liabilities, etcetera? Thank you. Thank you. When it comes to government support, that's a very it's a very complicated question. And we're, of course, primarily active in Europe. Talking a little bit about ITT, we are regulated in EU. We have a license operator here. We're actually operating onshore as well. As you know, all of our funds are onshore here in the EU. And we have local offices with people on the ground in almost every European country, or at least in many European countries. So that's a little bit of background on EQT. What we think is that we're all in this challenge together. These are difficult times. Our goal is to help our companies in the best possible way we can. And thinking about that, we're we need to be a responsible owner, but we also have a fiduciary duty versus our investors. If you think about who are the investors in EQT's funds, there are pension funds and insurance companies, life insurance and these kinds of things from around the world. So the owners of the companies that we're talking about in private equity, it's not EQT that owns these companies, it's actually our investors who own the companies. We're managing the companies on their behalf. So we believe that in is there a situation where we're supporting your company and the banks are supporting your company and the government also would be a part of supporting that company, we think that's completely appropriate. Okay. Thanks. Thank you. The final question we have is from Rick Warner from UBS. Please go ahead. Thanks. Mike Warner from UBS. Thank you for all the answers. Just maybe a follow-up or 2. I guess, any color as to why the quarter on quarter marks in EQT7 were more negatively impacted than some of your other funds? Was this broad based amongst the portfolio companies within EQT7? Was there a particular company that saw maybe a sharper mark? That's one. And then second, you noted how you will tend to with MetLifeCare intending to cancel that transaction. Is there a risk of any other transactions that you have announced that may not see completion given any material adverse impacts? Thank you. That is Kessler, will you take the first one? Yes, sure. I can do that. I think when it comes to ECC7, and again, I don't want to go into specific portfolio companies, but it's really the portfolio composition there. And the majority of that write down is actually comes out of one particular situation. But so that's the background. There is nothing else. If you look at the sort of overall portfolio, it looks basically similar to the others. It's just that yes. And Chris? Yes. We don't have first of all, there are not that many situations where deals are pending right now. So that's not really a question that we expect to see in a broad base. So you don't have any other public to private situations that we're working on either or that we have that is in the market now, working on probably, yes, but nothing that's in the market right now. So that situation I would say is a very particular situation. Okay. Thank you very much guys. Thank you. Thank you. Ladies and gentlemen, that concludes the questions for today. I'd like to hand back to the speakers for any closing comments. Thank you very much. We appreciate that everybody joined and we appreciated a lot of good questions today. Hope it's been helpful and look forward to seeing you next time. Thank you. Bye bye. Thank you. Ladies and gentlemen, that concludes your call for today. We thank you very much for joining and after you disconnect your lines. Thank you.