Good morning, everyone, and welcome to EQT's Q3 announcement. Together with Christian and Kim, we will present for about 30 minutes before opening up for Q&A. Caspar is unfortunately ill and will not be joining us today. In order to ask questions, you need to be dialed into the conference line. If you've registered ahead of the call, you should have received an email with your personal PIN code to participate in the Q&A. It's a slightly new procedure. As you will all have seen, we have now closed the combination with BPEA and before diving into the Q3 update, we'll start off with a short video. Video, please.M
I think it starts with being on the ground and local and understanding the complexities of the markets. We really grew up in a similar way.
Multinational spread out with really decentralized decision-making. It's a fantastic combination, and now we can get going and start working together. I'm really excited to now be a truly global firm and to bring all this knowledge together to become, you know, a better investor and an even better place to work for everyone involved. We really have a shot at doing that, and it would've been very hard for us to do that on our own. Now that we have the resources and we have knowledge sharing that we can really leverage, we've just raised a $11 billion large buyout fund, which is tackling the large cap end of the market. It's quite a diverse region. The disparities between Japan and Australia and India and China makes it a market where you really need to be local. We've been in business for 25 years.
The next phase of evolution, I think, for our industry is to move from being geographically focused to being more sectorally and thematically focused, and that ties in really well with the way EQT is running the business today. The next wave is how do we actually bring, you know, machine learning and AI to our portfolio companies as well? We have something like 200 portfolio companies across multiple industries and countries. We have over 300,000 employees in those companies. The amount of information that we're actually sitting on and that we're able to now process and use to find out what's happening in the world real time. I think the important shift that we did at EQT was to connect sustainability to performance or to making companies actually better.
If you think about two companies that are exactly the same and one can become more sustainable than the other, you know, which one is gonna be more valuable? Which one is gonna attract the best talent, have the best relationship with regulators, with clients, have the most future-proof value chain? You name it. We think it's the more sustainable one. Bringing sustainability into our value creation thesis, that's what's really created the movement at EQT to be ahead of the curve in this important space. Bringing that to Asia, I think, is a unique opportunity. I think for our team, it's very motivating to have a higher purpose than just purely a financial one. On the LP side, I think there's a real desire and an interest and almost a requirement to focus on this, and with an Asian context, it's relatively new.
EQT is a leader globally in this area, and I think we can learn a lot and adopt a lot of that in the way we operate. I think it brings together people in a different way than if you're just, you know, working for a financial result.
That movement actually creates a lot of energy and a lot of drive in the organization. Definitely. It feels like we've actually already been combined together for years, even though we just signed the deal several months ago. We're already working together in many of these different areas, so stay tuned.
Good morning and welcome everyone. As you can see, we're quite excited to close the combination with BPEA, and we're now starting to really work together with John and his team on best practices, on deals, and on, you know, integrating our two great companies. The combination means that we not only have a scaled platform in Asia, but a truly global platform, and it's diversified across geographies, asset classes, sectors, and investment strategies. We remain focused on active ownership where we can make a difference with each and every investment. Fundraising progressed well in the third quarter, despite being a very competitive market. We've now raised EUR 25 billion year to date at EQT, and BPEA recently closed its latest flagship fund at the hard cap of $11.2 billion.
We're quite pleased to see our clients continuing to invest with EQT to meet their long-term return objectives. As a testimony to our track record, BPEA's track record, and of course, our combined current strong performance. The global economy is facing a number of challenges, and we are well prepared to manage these. We have a young portfolio of thematic investments with clear value creation plans, as well as recession and inflation actions. Our companies and buildings have long-term financing structures in place, and on the investment side, we expect to have more than EUR 50 billion of dry powder to deploy across strategies in 2023. Our deal pipeline across regions and sectors remains quite solid. Of course, this new environment has an impact on everyone. The financing markets continue to be constrained.
New debt financing has become substantially more expensive with close to 10% yields on leveraged financing in Europe and the US right now. However, in Asia, rates actually remain a lot more attractive with lower inflation and more financing availability. In terms of size across the world, actually, it's hard to raise more than around EUR 2 billion of credit for buyouts at this time, even from the private credit players. Having said that, though, on the infrastructure and real estate side, financings are more available, given the inflation-protected assets in those strategies. Thus, our investment and exit activity has slowed down markedly as we're patient in finding the right thematic opportunities across the group. Now, we nevertheless announced a few thematic investments in the third quarter, and we continue to actively evaluate a number of potential targets.
Moreover, our portfolio companies are working actively to source add-ons like WorkWave's purchase of TaskEasy, for example. We've made a few exits at solid valuations and returns. Now, while our portfolio companies are generally doing well with strong top and bottom-line growth, some of them are seeing a slower pace of EBITDA growth. Now, including BPEA, we have a team of more than 1,750 talented people to help us through this more disruptive time. As mentioned already in our H1 update, we've significantly slowed down hiring efforts and are now focused on really scaling the EQT platform and utilizing this great talent group that we have. Next slide, please. It's been three years since EQT went public. Since then, we've more than doubled the team, more than doubled our client base, tripled AUM, and quadrupled EBITDA.
At the same time, we've continuously developed our value creation toolbox and taken leaps when it comes to sustainability agenda, as you could hear from the video. We've continuously developed our digitalization capabilities, including with Motherbrain artificial intelligence, and now starting to try to bring that to our companies. Importantly, of course, the core, delivering solid returns for our clients. As you know, we thought about the IPO as a watering station being part of a long journey to give us new tools and new energy. We thus have a very long-term perspective on this journey, and we're quite confident in our path ahead of being active owners, and now also being in a much stronger global position than ever before together with BPEA. Next slide, please. Today, EQT is a purpose-driven global leader in active ownership strategies.
Our purpose is to future-proof companies that make a positive impact. We've scaled platforms in our three main strategies. Across private equity and in infrastructure, we are top 3 in the world in both of those. In real estate, we're now top 10 globally based on capital raised in the last 5 years. We're local with locals and geographies representing 80% of global GDP. We invest from ventures to mature companies across resilient and growing sectors like healthcare, technology, logistics, the energy transition, and essential infrastructure. We have a global client base with approximately 1,000 clients across Europe, Asia, Middle East, and North America, and we're now nicely diversified. Almost 20% of our AUM is in private capital Asia, 40% in Europe and North America in private capital, 25% in infrastructure, and 15% in real estate.
Across regions, roughly half of our invested capital is in Europe, one-third in North America, and one-fifth in Asia. This scale and diversification means that we can leverage insights across the platform as we evaluate opportunities and risks. We're now on the forefront of future-proofing companies and in using tools like AI to make us a smarter investor. We have the scale, actually, and the talent to be able to continue to build that. With our position, we have also a wider range of investment opportunities, like the recent public to private of Billtrust in the U.S., finding those unique opportunities in this more difficult market. We can, of course, support our companies as they scale across the globe.
Finally, with our values-based culture, we continue to attract really great talent to EQT and retain the great talent at EQT, also in our advisory network, which is expanding now together with BPEA, and talent to the portfolio companies. Taking a step back, you know, our platform now builds on almost 30 years of experience and performance over cycles, and I think that's actually key in these more challenging times, so we know how to deal with challenges but also take advantage of investment opportunities, which can be quite attractive now. Talking about that, next slide, please. When it comes to Asia, we believe the region offers really attractive investment opportunities.
The region's on track to represent the majority of global GDP growth, and the Asian private market is expected to outpace the growth of global private markets by almost two times. This growth is supported by both companies and economies maturing, leading to attractive investment opportunities across the region. We're, for example, particularly excited about India, where tech services and next-generation software companies provide excellent deal opportunities. The team at BPEA has decades of experience in choosing the right assets and the right geographies and being diversified across a large and dynamic region.
For example, BPEA has about 12% of its AUM in thematic investments in China versus now more than 20% in India, showing a little bit where we see the best opportunities. Like I said, we couldn't find a better partner to seize this Asian market opportunity than with Jean Salata and his team. The combination of our two firms brings real advantages to both platforms and creates this global leader in private markets. If you're looking at BPEA's latest flagship funds, it's one of the largest private equity funds ever raised in Asia, meaning we have significant dry powder to invest from. Like at EQT, the portfolio companies are generally performing quite well, but also some pockets of underperformance here and there, but generally quite strong performance.
Valuations in Asia, in the portfolio also remain quite stable at BPEA, just like with EQT. In addition, BPEA has been able to drive a number of exits this year, both full exits, also partial exits, showing the resilience of their investment strategy. Now, our sector teams are joining forces to source thematic opportunities across the region and of course across the world. We exchange intelligence, sector insights, best practices, and and actually have, of course, teams joining when there's an education deal, for example, a BPEA team member will join EQT when there's a software deal, maybe an EQT member will join the BPEA team. This is gonna help us, you know, strengthen our investment strategies.
We're also working to strengthen the value creation toolbox, globally, and in particular in Asia with driving sustainability, digitalization, and Motherbrain, even more actively. Of course, we also share knowledge about preparing companies for harder times, both from an economic point of view in terms of cybersecurity, or whatever may come. Now, looking ahead in Asia, we will gradually build our mid-market growth focus there as well, as the first step in expanding our strategies in the region. On the real estate side with EQT Exeter, we're strengthening the real estate platform in Asia. Together with this combination, I think we'll have about 75 great team members in real estate in Asia. Now represents the third leg of the global expansion for EQT Exeter.
In infrastructure, we'll of course leverage this platform that we now have in Asia to continue to source new attractive investments for that global strategy. Next slide, please. We've since Q1 worked actively to make sure portfolio companies are ready for different macro scenarios, being a prolonged recession or a more temporary downturn or longer-term inflation or whatever it might be. Our objective is to really develop resilient future-proof companies which continue to drive intrinsic value through the cycle, that we can be active owners in developing these companies organically through acquisitions, transformation, whatever is needed. Last year, of course, we also began reviewing capital structures, extending maturities, and pursuing refinancings where relevant.
We have an average maturity level in terms of our financings in the portfolio companies of four to five years for private equity and infrastructure. We do have solid financing structures in place for our companies. We also started early in reviewing procurement, pricing, and product offerings. If you look at our investment strategies, we have a very significant B2B exposure, very little consumer exposure. So far, this means that we've effectively managed to offset inflation pressures in most companies. Of course, in infrastructure and in real estate, there's inflation protection built into the business models. Portfolio companies are also now and have been for the last year or so, reviewing cost structures, ways to improve cash flows, and preserve liquidity in case really tough times come.
This is also a time to strengthen product offerings, continue to invest in R&D, and build platforms which are really scalable, for when, you know, the macro environment at some point in time stabilizes. Like I said, many of our companies are looking at bolt-on acquisition opportunities. In the third quarter, we made a number, including for Solarpack, including for Saur and Schülke, and the one that I mentioned earlier for WorkWave. That is great. It's a real opportunity to strengthen our companies during this time, and to do acquisitions or add on acquisitions at slightly lower multiples, than in the past. Also, EQT Exeter is seeing healthy demand in their portfolio, having, for example, renewed expiring leases at actually more than 20% rent increases in the Core Plus portfolio earlier this year.
Of course, also in EQT Exeter, the team is showing a more measured pace on investing during this uncertain time. The Exeter portfolio is invested thematically as well, with about 90% in logistics and industrial properties, and the remaining 10% split evenly between life sciences office and multifamily. EQT's overall approach to active ownership in creating intrinsic value through cycles means that our key funds have always delivered at least 2x the money, 2x MOIC since inception, and every key fund at EQT has delivered carry. Next slide, please. Long-term structural growth drivers mean allocations to private markets will continue to increase. Private markets have consistently outperformed public markets across all time periods. Returns have been more resilient and more stable over time, as we also see in this current environment.
A lot of it, of course, is due to the active ownership approach. In many regions, Asia in particular, institutions still have relatively low allocations to private markets, and the private wealth segment is actually expected to increase significantly their investments from quite a low base globally. We believe private markets play a critical role in society in helping companies transform and grow. For example, there's a significant infrastructure funding gap which we are helping to bridge, where a lot of capital and resources are required, for example, to drive the energy transition. We have an ability to make real positive impact at scale, driving sustainable transformation across portfolio companies and value chains, a trend which our clients really support and in great companies like Covanta, which is the largest waste energy provider in North America, which is critical in today's environment.
Now back to private wealth. We do see a strong interest from a wider range of private wealth clients to invest with EQT. Therefore, we're in the process of evaluating structures that would facilitate access to EQT's investment strategies through different private wealth channels. While the long-term prospects are exciting for all the reasons I just mentioned, we do believe that we see that the fundraising market is quite competitive. In the US in particular, we continue to see the denominator effect affecting allocations to private markets for some of the US pension funds. In the short term, we expect some headwinds in fundraising in the global market until markets stabilize and realizations pick up again.
To give some more color on that, I'll now hand over to Olof, who will talk about our fundraising momentum and progress.
Thank you very much, Christian. Let us now focus on the ongoing fundraisings which proceeded well in the third quarter. EQT X, as you may have seen, had its first close at about EUR 15 billion. We launched fundraising for Infra VI with a target size of EUR 20 billion, and as Christian mentioned, the BPEA Fund VIII closed at hard cap, making it one of the largest private equity funds ever raised in Asia. Within EQT Exeter, we have raised EUR 6 billion year to date with the final close of the EQT Exeter Industrial Core-Plus Fund IV at $3 billion, which was above its $2.5 billion target. We recently initiated fundraising for Exeter's European Industrial Core II Fund with target size of EUR 2.5 billion.
EQT Exeter now has AUM of about EUR 17 billion and including funds in fundraising, EQT Exeter will have around EUR 10 billion of dry powder in the near term. Considering the very active exit agenda Exeter had last year and, to some extent this year, EQT Exeter is definitely in a quite strong place. EQT Growth held final close at over 2 billion euros, making it the largest first-time growth fund based in Europe, and we're making good progress with EQT Ventures III. In line with our communication in H1, some of our new initiatives, the longer-haul strategies in particular, are taking longer to raise. These strategies, which charge fees on invested capital, are also taking a slower approach to investing in this environment.
All in, we've raised close to EUR 30 billion this year, including the BPEA fundraisings this year. Next slide, please. Let's next focus on the AUM development. As I mentioned, we activated EQT X in the third quarter and will be charging management fees from the beginning of August. Closed out commitments as of the thirtieth of this September are therefore now included in our Q3 AUM number, and the AUM base for EQT IX has stepped down to invested capital. EQT X fundraising will continue well into 2023. As mentioned, we've launched fundraising for EQT Infrastructure VI, and the vast majority of this fund will be raised in 2023. The fund has not been activated, and activation depends on the investment pace in the predecessor fund, EQT Infrastructure V.
As you know, we're taking a patient approach to new investments in this environment. BPEA's AUM as of Q3 amounted to EUR 22 billion, and together with the EQT funds, this means our AUM is now close to EUR 114 billion. Next slide, please. Turning to investment and exit activity, there was some activity, but it was muted, we'd say, in the third quarter. We remain disciplined when it comes to our underwriting processes and keeping a strict focus on thematic opportunities. We think there is a continued gap in valuation expectations, and there will still be some time before buyer and seller expectations meet.
The debt financing continues to be challenging, as Christian mentioned, and the syndicated loan market remains on hold, whereas financing is available in the private credit market for the right types of deals. We're also seeing continued appetite from commercial banks for infrastructure-style financing. We've recently financed one deal in private equity with commercial banks as well. However, for any type of debt financing, the cost has increased meaningfully, and large-scale buyouts will likely not be possible in this environment. In Q3, we announced two deals in EQT X, United Talent Agency and Billtrust, a public to private in the US. As of late, our investments have mainly been in North America or Asia, or in European companies with global platforms. We continue to look at opportunities in resilient sectors with low correlation to this cycle.
Across the key funds, EQT X is now 10%-15% invested. EQT Infrastructure V, 75%-80% invested after a few add-on acquisitions among the portfolio companies. BPEA is reported to be 15%-20% invested, BPEA VIII, I should say. On the exit side, we realized close to EUR 2 billion of announced real estate exits in EQT Exeter and also GPA Global in EQT Mid Market Asia portfolio company. In EQT Ventures I, we exited a company called riskmethods. Last week you'll have seen that we announced a partial sale of GlobalConnect by EQT Infrastructure III. With that, I'll hand over to Kim to talk about our fund valuations.
Thank you, Olof, and good morning, everyone. Portfolio companies are generally seeing continued strong sales and EBITDA growth, contributing positively to fund valuations. In our H1 update, we mentioned a growth rate of 25% and 22% respectively for our broader private equity and infra portfolios and EBITDA growing at high teens. At this point, we've not seen an impact on top line growth with around 25% top line growth across both private equity and infrastructure, looking at key funds year-over-year until August. In infrastructure, we estimate that 90%+ of the companies are able to pass on inflation. In private capital, the portfolio companies, often being B2B businesses in thematic sectors, also have a strong ability to pass on cost inflation. A few portfolio companies see some headwinds impacting EBITDA growth, though.
For example, transportation companies are affected by higher energy prices. Social care companies see some wage inflation, some of which have a lag when it comes to inflation and adjustments in their, in their contracts. COVID restrictions earlier in the year affected a couple of companies. While we don't have much exposure to manufacturing companies, we have seen supply chain issues having an effect on a few assets. Generally, there is a difference in how valuations develop in individual funds depending on the vintage. Looking at our earlier vintages like EQT VII, but also EQT Infrastructure II and EQT Infrastructure III, valuations are stable, partly because a meaningful portion of the assets have already been realized. More recent funds like EQT IX are still in the investment phases or value creation phases, where lower public market references are offset by positive operational and financial developments.
This goes also for Infrastructure IV and V. Generally, we see the infrastructure fund valuations being quite stable. In private capital, the average reference multiple in our key funds is down 13% over the last 12 months. By sectors, the implied multiples in services have seen the highest declines, whereas healthcare has been the most resilient sector. In infrastructure, DCF valuations are commonly used and discount rates are higher where applicable. In the cases where public market multiple references are used for valuations, these are generally somewhat lower, but transaction multiple references have, on the other hand, had a positive impact on valuations in infrastructure. Importantly, realizations by the EQT funds continue to support valuations. Most recently, Infra III realized part of GlobalConnect at a level which is 0.3 times higher than the gross MOIC valuation at the start of the year.
The realization of GPA Global in our mid-market fund came in at a gross MOIC level comfortably above the previous fund valuation. While valuation is not an exact science, external evidence also support our valuations. Let's go to the next page to give some specific examples of valuation drivers in our funds. Next slide, please. To provide some specific examples, I'll go through the developments in EQT VIII and EQT Infrastructure IV over the past 12 months. There are some much smaller funds in our portfolio of funds with exposure to early-stage tech or public markets which have had a more challenging development. Here we focus on two of what we call our key funds. Companies in both these funds have seen strong underlying performance. Keep in mind that improving company performance is at the core of what we do.
It's all about active ownership. Both sales and EBITDA grew over 20% in EQT VIII over the last 12 months. A large part of the private capital portfolio is valued based on peer group multiples. In EQT VIII, the average multiple reference is down 17% over the last 12 months. Similar to other funds, the healthcare assets are largely flat, where certain higher growth assets have seen meaningfully lower valuation marks. The listed holdings in EQT VIII are down almost 15% on a weighted average basis over the last 12 months. For Infra IV specifically, comparable transaction multiples in relevant sectors have supported the reference multiples used in the valuations.
Infra IV has no listed holdings, and as you may remember, in Infra we have so far not have exited any holdings via IPOs, but rather exited to strategic or financial buyers. In Q3, we had a positive effect from FX in EQT VIII as our U.S. dollar-based companies are valued in euro in our key fund valuations. However, across the key funds and over the last 12 months, the FX effect was neutral on fund valuations. Companies are for the most part valued on an enterprise value basis, so to reconcile valuations to an equity value, we therefore need to take net debt moves into account and if a fund does add-on investments, those are booked at 1x in the fund valuation, which means that new investments really lower the fund gross MOIC valuation somewhat, everything else equal.
That's a summary of the various factors affecting the valuations on our books. The operational improvements actively achieved at the portfolio companies are at the core of the value creation. Next slide, please. We now have a global team of about 1,750 employees, and this includes over 200 joiners from BPEA. In the first half, we had about 100 people joining from LSP, Bear Logi `and Redwood. As mentioned in our H1 update, we have slowed the hiring pace significantly. We have strong teams in place across investment strategies, and we built out key functions such as sustainability and Motherbrain. The slowdown is not fully visible yet as our Q3 FTE number reflect hires earlier in the year, having joined during the quarter.
While being much more restrictive, we may still hire people to support selected growth initiatives, for example, our continued expansion in North America and our private wealth initiatives. As always, we're also looking at ways to optimize our operations through scalable processes or digitalization. Christina Drews, our new COO, will play an important role in driving these initiatives on a global basis. Next slide, please. Having now closed the combination with BPEA, we will include BPEA in our consolidated accounts from now on. BPEA brings about 225 employees and EUR 22 billion of AUM as of Q3. As part of the closing, we're issuing about 191 million shares together with a US dollar $1.6 billion cash consideration, which we raised in the bond markets earlier in the year, as you may recall.
We have a solid cash position, and we will receive our contractually recurring management fees in January. In addition, where needed, we have an undrawn revolver of EUR 1.5 billion. As mentioned at the time of the combination announcement, BPEA expects to generate management fees of EUR 350 million-EUR 375 million in 2022. With the successful raise of BPEA VIII, we continue to expect BPEA to be within this range on a full year basis. Carry expectations follow the same pattern as mentioned before, i.e. in the near term, carry is likely to be delayed given market developments, but our carry expectations over the longer term remain. With that, I hand back to Christian for some final remarks. Next slide, please.
Thanks, Kim. To summarize, we are excited, as you could hear, to close the combination with BPEA, becoming a world leader in active ownership strategies. We're diversified across asset classes, regions, sectors, and investment strategies. With this truly global platform, we become even better at assessing opportunities and risks, identifying thematic investments, and to future-proof performance and make a positive impact. Given our strong performance for our clients and our differentiation, fundraisings are still progressing well despite being a competitive market as clients continue to invest with EQT. We're in quite a strong position from a dry powder point of view, soon expecting to have more than EUR 50 billion of capital across strategies to deploy in these thematic investment opportunities. We're staying patient and disciplined, as the market is highly uncertain.
Also, the financing market, of course, is limiting the larger deal activities for the time being. We're increasing our focus on the private wealth segment and expect strong interest from private wealth clients to invest with EQT, and we'll have much more to come about that in the coming quarters. We've had four quarters of largely stable fund valuations. In this time period, companies have developed strongly in our portfolio while valuation references have been lower. Looking forward, we expect uncertainty to prevail both in the macroeconomy and also in the capital markets. Taking it back to EQT, we believe that during this kind of time that active ownership is really important.
You know, we're continuously working to future-proof our portfolio companies, investing in innovation, making them more resilient in terms of stronger cybersecurity protection or whatever it might be. Making them more efficient and driving add-on acquisitions as we mentioned earlier, staying relevant to customers, becoming more sustainable, which means that you can, you know, make the companies more valuable also for the long term and more relevant to society. All these elements we think and we know actually over the cycles help drive performance through that cycle. With that, I round off the webcast and open up for the Q&A. Thank you.
Thank you. As a reminder, if you wish to ask a question, you'll need to clearly star one and then one on your telephone and wait for your name to be announced. Once again, it's star one and then one on your telephone. Please stand by while we compile the Q&A roster. This will take a few moments. We are going to proceed with the first question. Please stand by. We have the first questions coming from the line of Arnaud Giblat from Exane BNP Paribas. Please ask a question. Your line is opened.
Oh, yeah. Good morning. I've got three questions first, please. Could you talk about the investing opportunities you're seeing a bit more in detail? I mean, you highlighted that the cost of funding had gone up significantly. Is that now being reflected in the purchase price multiples that you might be negotiating? Or what needs to happen essentially for there to be a leveling off in the bid-ask? My second question is regarding BPEA. Could you talk a bit more about building out Exeter and Infra? Is the first step just really going out doing outright investments within the global funds and later on maybe having dedicated Asian funds?
Could you talk a bit maybe about the timing of that, if that's the case? Finally, on the wealth side, I'm interested to hear a bit more about the structuring of the products you're thinking about offering to wealth clients, who are the potential distribution partners as well. Thanks.
Excellent questions. Thank you very much. With regards to the investment opportunities, I think a great example is Billtrust, and that we just took private in the United States. It's a leading software company in the accounts receivable space in the US, which is super thematic. A great platform both for organic growth and for add-on acquisitional growth, and actually really improving the business. This is a company that went public in a SPAC a couple of years ago, and probably is a little bit too small actually to really be successful as a public company. We, you know, we're taking that private and really accelerating the development of the business.
It's a deal around EUR 2 billion, a little bit more than that, and I think that's about, you know, the maximum size that we see deals being done at. Maybe a little bit larger than that is possible. But like I mentioned earlier, in the private equity space, it's hard to raise more than about EUR 2 billion euros of credit for deals. Most of that will be coming from the private debt providers. Now, if you look at infrastructure and in real estate, you know, banks are more active. Like I mentioned there, you know, those asset classes are perceived to be or actually are more inflation protected.
I think we mentioned that 93% of the portfolio in infrastructure, for example, has a real inflation protection built into the business models of those companies. There's more financing available there, but also there, I think the size of deals will be, you know, a little bit muted compared to where we were, you know, a year ago, or significantly muted. I think that, you know, if you look at valuation levels, for thematic assets, you know, really attractive companies with resilient markets, strong sectors, real value creation plans, valuations are down somewhat.
Since a lot of that value creation is actually not necessarily dependent on leverage or the financing markets, we still see healthy prices for those companies because they have you know, great opportunities throughout the cycle to create value. We see also quite a few investments in the energy transition space. I mentioned Covanta earlier. We are looking at a number of renewable energy players. We're looking at a lot of add-on acquisitions for the renewable companies. Also for that for Covanta types of businesses. Electric vehicle charging stations, we have two companies there driving a lot of organic growth and some add-on acquisitions.
You know, the themes that we're investing behind are relatively consistent, but we're, you know, we're even more disciplined in terms of of making sure that we have real downside protection built in and crystal clear value creation plans so that we're less dependent on, you know, on valuations. I think you'll start to see more and more public to privates as, you know, as this, let's say the new valuation levels start to land. Again, Billtrust is one of those. We're looking at a number of other public to privates, but it does take a little bit of time for shareholders and boards to maybe readjust their expectations a bit and also for the confidence of the buyers.
That's why you'll see, I think, muted deal making for some time going forward. When it comes to Asia and EQT Exeter, we have, you know, within BPEA, we have a real estate business of a couple of billion EUR, which is investing in logistics and other thematic properties. When it becomes part of EQT Exeter, it also has a business in Asia. We've done some smaller add-on acquisitions. In total, we'll have about 75 people investing across Korea, Japan, and other regions, and in exactly the same way that we do in the US and in Europe, in logistics and industrial, and multifamily and in life sciences office.
We think there's a great opportunity, and ultimately, our plan is to have EQT Exeter be global in all those three strategies, so in the U.S., in Europe, and also in Asia. When it comes to infrastructure, that strategy is a little bit different. You know, we're raising a EUR 20 billion fund right now. It's a global fund, and it's very thematic. And in those themes, they're investing in the best assets they can find globally. We've done a number of investments on the social infrastructure side, for example, in Asia, that have gone very well.
With the combination with BPEA and our organic growth, where we're building out teams in Korea and Japan and Australia, Southeast Asia, and probably also India, where we have an investment, we see really interesting opportunities to deploy more capital over time, in that strategy, but from the global fund primarily. Finally on private wealth, it's a little bit early for us to go into specifics. But what I can say is we're looking into products that are handling both our private capital infrastructure strategies as well as the real estate strategies.
Very interesting. Thank you.
We are going to proceed with the next question. Please stand by. The next question comes from the line of Ermin Keric from Carnegie. Please ask your question. Your line is opened.
Good morning, and thanks for taking the questions. Perhaps we could start on, sort of, the investment pace in Infra. You mentioned that commercial banks, et cetera, have been perhaps a bit more open to also participate in funding there. It seems like investment pace has been a little bit slower on the Infra side than on the buyout side. Is there any special reason for that, or is it just kind of finding the right opportunity?
Yeah. Yeah, actually, there's a really good reason, and is that we've. You know, we invested the previous fund relatively quickly in some really great companies and platforms, and those platforms are driving a lot of growth organically that needs capital actually from the fund and doing add-on acquisitions. We've been more, you know, in this more disruptive time, been more focused on building that existing newer portfolio out than deploying new capital. Having said that, actually across regions and across the different investment areas of infrastructure, deal flow continues to be strong and actually very similar to what we see in on the private equity side, where there are both public to privates and private opportunities, both from strategic buyers and other types of owners.
It's really about prioritization and where we see the best risk-reward at this point in time, and that's really building that existing portfolio.
Thank you. Maybe just to follow up on that directly then. Could we actually see the Infra VI fund being activated without any new large acquisition being added to the Infra V fund, but the remaining capital going to add-on acquisitions, as you mentioned?
That's a little bit too specific to comment on, because you know, the way that private equity works is that you know, you're always working on a number of different investment opportunities, both in terms of add-on acquisitions and new investments. Exactly how they play in size, in timing, and in form determine exactly how the portfolio composition of a single fund is. Like I said, deal flow remains strong. Add-on acquisitions are actively pursued. Organic growth is actively pursued with you know, with deep investments in, for example, expanding the EV infrastructure in both the U.S. and Europe, which needs capital. I think I have to answer it in that way.
I'll let Kim come back to if you wanna comment at all on activation of Infra VI.
No, nothing more specific than that. I mean, we've said that it's not activated, and it depends on the investment pace in the predecessor fund. Like Chris mentioned, in theory, your scenario is possible, but it is up to so many different things that we can't say much more on that.
Got it. That's still very helpful. Then just a couple of questions on BPEA as well. So you mentioned that you expected them to have around EUR 350 million-EUR 375 million in management fees for 2022. Should we expect that to be kind of back-end loaded, given that the eighth fund only closed more recently? And also, the kind of mid-teens guidance that you had on the acquisition multiple at the time of acquisition, is that still relevant for 2023, or should we expect it to be a bit higher given that carry is now maybe being a bit pushed forward?
Please, Kim.
Yeah. There's a tilt towards the latter part of the year, but we're not gonna give more exact guidance than that. As you know then, as I mentioned, we will start consolidating as of now, as of today or yesterday, I guess, the BPEA and come back to you then in due course with the exact details of that. What was your other question?
The other question was at the time of acquisition, you mentioned.
Oh, yeah, yeah. No, we stay with the same guidance as we have said at that point. Obviously, the purchase price is also different if you look at the share portion of it now, so.
Yeah. 85% or so of the acquisition was financed through shares. Since it was a share for share exchange, maybe another way to say it is that the deal is still accretive both in short-term earnings and long-term earnings.
Thank you. Just to be clear, so when we're saying it's still mid-teens, is that based on the kind of final acquisition price or on the price there was at the time of announcement?
It's based on the
Because it's a share for share exchange and earnings just, you know, changing a little bit from carry, you know, we're not gonna be as specific on guidance as you know, because we never provide guidance on carry. I think the way to answer it is rather the way that I did on an accretion basis.
I had to try at least. Thank you very much for taking the questions.
Thanks. Good questions. Thanks.
We are going to take the next question. Please stand by. We got the next question is coming from the line of Tom Mills from Jefferies. Please ask your question. The line is open.
Oh, good morning, guys. Congratulations on the completion of the BPEA deal. I'd just like to ask,
Hey, Tom, your line is breaking up, at least for me.
All right. Is that better?
Is it okay?
Uh.
Yeah, if you speak slower.
Yeah, I can hear you. Is that better now?
Yes. Thank you.
Yeah. Okay. I'd like to ask a question about the partial realization of GlobalConnect from EQT Infrastructure III and IV. I know the terms of that deal weren't disclosed, but according to press reports, at least it looks like it could have been a fairly chunky deal with an EV of over $7 billion, and I appreciate that's not an equity check. I think you mentioned on the call that the partial realization was done at MOIC 0.3 times higher than the start of the year, and I would guess that must have been attractive in the context of EQT. For III's MOIC of 2.7 times, or you wouldn't have done the deal in this kind of market backdrop.
Could you give us an idea as to whether there is much of an uplift already reflected in the 3Q MOICs for EQT and for a three and four, or should we expect that to come through in 4Q? Really, I'm just trying to understand if the upside from that deal is offsetting weakness elsewhere in the portfolios, or should we see it as genuine upside? That's it. Thank you.
Maybe I'll start and then, Kim, you can take over. I would think about it in this way that, you know, for a single investment in a single fund that is already marked at a, you know, a reasonably solid MOIC, a small uptick in that MOIC won't make a big difference to, you know, the valuation of the entire fund. Yes, it's a very positive transaction. It's great and incredibly well done by the team. It's quite sizable. It's all equity, of course, coming in. There's no change to the capital structure of the business. I think it's great. You know, it's great for EQT III, it's great for EQT IV, and the new investors to be able to continue to create value with the company.
I wouldn't say it's shifting valuations in a major way. Kim?
I agree with that. The reason we brought it up was merely to exemplify that the external data points we have on our valuations, i.e. all of the exits we've done basically during this year have been at valuations above our book valuations. We feel that that is a good data point for the market to also understand.
Great. Thanks very much for that.
Thank you.
We are going to proceed to the next question. The next question comes from the line of Hubert Lam from Bank of America. Please ask your question. The line is open.
Hi, guys. Good morning. I've got a few questions. Firstly, can you talk about your return expectations going forward for your new private equity infrastructure funds? Just given the higher rate environment now, like what are your expectations for IRR going forward? Second question is on performance fee outlook for the second half. I know you've done a few deals, and how should we think about it for this half? Lastly, can you remind us on the debt exposure of the underlying companies that you have in your portfolio? What's the average leverage ratio? I think you mentioned a bit about that they have long-term financing, but please remind us on terms of the financing profile going forward. Thank you.
Thank you. Again, I'll start, and then my colleagues can add. With regards to return expectations, actually bringing it back, you know, 3, 4, 5 years, we did not change our return expectations during that boom period, and neither are we changing our return expectations now during this more complicated period. What that means is, you know, in the different parts of the cycle, it means that you need to really choose your, you know, the investments that you make very carefully. You need to have crystal clear value creation plans, and you need to have, you know, a real understanding of what the downside and the upsides are, in each investment and thus in the portfolio construction.
The reason that the market slowed down when there's uncertainty, of course, is that we don't know what's happening with the capital markets. We don't know what's happening in equity and debt. We don't know what's happening with inflation and interest rates and the global economy. When there's more uncertainty, it's harder for buyers and sellers to meet in their expectations. We remain, you know, our equity, our buyout strategies, you know, they remain focused on 20%-25% gross returns or gross fund returns. The infrastructure funds, you know, 15+, 15%-18% or so in the value-add infrastructure strategy in the key funds. That's the way that.
You know, those numbers have been the same for quite a long time. The reason we don't lower them in good times and raise them in bad times is that we think it's our job to find the right investment opportunities and find the right value creation strategies across the cycle. When it comes to outlook for Q4 in terms of deals and exits, if that's what you were curious about, I'm not gonna make any prognosis other than what we've said. You know, there is good deal flow across the group, and there are some exits that we are working on.
With this uncertainty that's out there, it's very hard to say exactly when those investments may or may not be done or those exits may or may not be executed. On the debt exposure, we typically don't go out with that much detail. Like I said, our typical debt maturities are four to five years. We're typically hedging our interest rates for, you know, two to four years at a time. We have, you know, during the hot cycle, our strategy has been more to focus on growth and companies that can, that we can build, meaning that we've rarely maximized leverage. We don't use a lot of PIK notes and other creative instruments.
It's mostly, you know, bank financing, maybe some mezzanine or some private high yield, not much high yield in the public market, actually. Some unitranche facilities from private credit players, which, of course, understand our business model very well. That's maybe the generic comment that I can make, and let's see if Kim or Olof wants to add anything.
Yeah, it's Kim here. I think Hubert may have asked about the carry outlook actually for the rest of the year here, which we're also not commenting on. I mean, I may still say that what I've said before, that accounting carry is a function of both valuation changes in the funds and exits then in the funds. After H1, you've seen the valuation changes. Basically, valuation has been broadly flat if you look across the funds. In terms of exits, there hasn't been any barrage of exits exactly. That should give you a sense for carry expectations as well.
Maybe I can add a few comments on the financing of the portfolios. Hubert, you may remember we added some stats on this in our H1 update, and it has not changed meaningfully since then. As Christian referred to, we have debt maturities of 4-5 years on average across private equity and infrastructure, you know, solid financing structures with interest coverage ratio of 2.5 times in private equity and closer to 4 times in infrastructure. Generally, we have, you know, also in line with what Christian said, us taking slightly lower leverage than we would have the opportunity to combine with very, very strong relationship with banks.
I think we are in a good position with everything being coordinated from our central financing team run out of London. In addition, as you know, about 75% of our financings are covenant light, which goes with our approach to financing. Again, as Christian said, a very high portion of that is fixed rate, over 70%, either through fixed rates or through interest rate swaps.
Great. Thank you, guys.
Mm.
I could say the same goes for BPEA. They have a very, very similar strategy in how they manage their credit portfolio in terms of the credits to the portfolio companies, that is.
We are going to proceed with the next question. The next question comes from the line of Michael Werner from UBS. Please ask your question. Your line is open.
Thank you very much. Just two questions from me, please. First, you noted that, in terms of financing, it's tough to get anything over EUR 2 billion. As we look at EQT X, if this continues to be the landscape as we look out over the next couple of years, is this something where you may just see, you know, fewer large, more number of portfolio companies at a smaller scale? Is that something that you have the capacity for? Second, on, you know, within the private capital business, particularly the PE business, you noted that, you know, some of the businesses, B2B, have natural pricing or hedging, inflation hedges. You know, have you been aggressive on price increases within those portfolio companies?
Is this a lever that you feel like you can continue to pull going forward? Thank you.
Thanks. Good questions. When it comes to our sweet spot in EQT X, you know, it's from about EUR 500 million or so of equity up to a couple of billion. We can do those larger transactions also, you know, together with our clients and co-investments. With the available credit that's out there, you know, I think we can construct this portfolio in quite a similar fashion as actually EQT IX. What you probably won't see, at least not in the short term, is something like Galderma, which, you know, was a $10 billion deal.
you know, the sweet spot where most of our buyouts are, like Billtrust I mentioned, are still very available and that's how, you know, what we're focusing on now. There might be, you know, some more smaller platforms that we decide to buy, you know, like an SPT Labtech that we did in May or June. A smaller portfolio company in life sciences that we can grow aggressively through organic growth and add-on acquisitions. There might be some more smaller platforms, but time will tell. It depends a little bit on where the best risk-reward is.
In terms of capacity, yes, you know, we have the youngest portfolio of companies in private equity and in infrastructure in the world, at least in our, you know, our kind of size brackets. We've done a lot of exits. We've exited most of the older funds. Like, an example of this is the oldest company we have in the portfolio in private equity is from 2016. We have quite a bit of capacity in the team. We also have all of our industrial advisors around the world. We have about 600 of them now, that are helping us in the portfolio companies and in the acquisition phase. We actually, you know, scale EQT a lot more beyond our own teams as well. No issues there.
Sorry, what was the question on hedges? I just wrote down hedges.
It was more on pricing. How
Yes. Exactly. On inflation and pricing. Well, you know, in the process that we go through, and we started this already Q3 of last year, is to look at every single company and give them the tools and capabilities if they don't already have them to deal with inflation. One of those elements, of course, is pricing. Another one is, you know, sourcing and procurement and all that kind of stuff. On the pricing side, it's kind of impossible to answer the question because it's a dynamic one. You know, if you raise prices too quickly, too harsh, then you might affect demand too much. This is a fine balance that's really built portfolio company by portfolio company.
We've been on it for the last year on bringing capabilities to all of our companies to make sure we do that in a wise way.
Thank you.
Thank you.
We are going to proceed with the next question. The next question come from the line of Magnus Andersson from ABG. Please ask your question. Your line is open.
Yes. Thank you and good morning, and thanks for the color on the income side. Just if I might take a question on the cost outlook now. Kim, you mentioned that the higher hiring pace would slow in conjunction with the H1 report, and we see that's happening now in Q3. You also said that it's not fully reflected the slowdown in this quarter, which I guess it will be then in Q4. My question there is in underlying terms, excluding BPEA, is the kind of Q4 sequential increase from Q3 what we should expect on an annual level roughly for 2023 unless the environment would change?
Second, if I remember correctly, when I looked at BPEA back in March, it looked like their cost base had been flat for three years, 2019, 2020, 2021. Since you think that the environment is better in Asia than in Europe and probably in the U.S., you might ramp up investments now from 2023 in BPEA. Finally, on cost just the average FTE cost per employee, what we should expect including BPEA, if it should be similar to what we've had previously.
Kim, would you?
That was a lot of questions actually in it, but let me start disentangling them. When it comes to sort of explicit guidance on headcount growth for next year, we don't wanna give that. What we're saying is that we have slowed down significantly the hiring pace. This will show in Q4 and I don't know exactly what it will be now, but so whether it's a great guidance for 2023 or not, I'm not sure as of this point. Obviously we will calibrate the future growth then based on how the market development looks like.
If it looks different in Q2 of next year, then we may have a different view on these matters. But right now, based on what we know right now, we will be very cautious and the only growth in headcount will be in sort of specific areas that we are investing in order to grow our business, like the private wealth initiative Chris mentioned here, like in North America, that was mentioned. I wouldn't exclude also that we are investing a bit more in some parts of the BPEA operations in Asia in order to be ready for the next leg of growth there.
When it comes to sort of cost per head, there's always a number of different factors working in different directions here, where one is that the new headcount we have is in more expensive parts of the world and in more expensive areas such as the private wealth area that was mentioned. On the other hand, we always have the variable part, the part of the compensation to work with, as well. Taking all of this together, you need to calibrate those in different directions, and I'm not gonna give you an exact number of what that will be going forward.
Okay. The variable share of staff cost, is that around 50% or?
It was above 50% last year, when in a great year such as 2021, and historically been around 50%, yes.
Yeah. Okay. Thank you. Secondly, just short on fundraising, Olof, you mentioned that you expect the newer initiatives to take longer time to raise in this kind of environment. But when it comes to the flagship fund, for example, now Infra VI, do you expect a normal fundraising for that one in this environment?
Should I take this, Christian, or you want to?
Yeah, you start. I'll add.
No, I mean, Infra VI we said. We started fundraising in September, as you know, and we've said that's gonna continue well into 2023 with most of the fundraising taking place in 2023. I mean, if you think about different asset classes, and as we've been alluding to throughout this call, there is a strong interest in infrastructure as a segment. It's also, you know, we talked about the investment pace having been relatively slow throughout the year within this segment, but also some very interesting investment opportunities ahead within infrastructure in particular, and Christian pointed to a few of those drivers. Definitely it's mostly a 2023 event, but the backdrop infrastructure fundraising is solid.
Yeah. Well said. You know, if you look at our infrastructure strategy, we're the best performing infrastructure investor in the world. You know, we have this global position. We have a lot of trust from our investors, a great team, and there's so much capital needed to transform infrastructure, drive the energy transition, for example, across the world. There are some real, you know, positives, and then you have the downside protection built into that business model. It is still a smaller market than, you know, the private equity market. You know, I would say that it probably will take a you know a little bit more time to raise than in the upcycle but with good momentum.
Yeah. Okay. Thank you very much.
We are going to proceed to the next question. The next question comes from the line of Jacob Heslevik from SEB. Please ask your question. Your line is open.
Hi. Good morning, everyone. If we just go back to financing, Olof, you mentioned earlier that 7% of your financing in the portfolio companies are fixed, and I don't know if it was you or Christian who gave us that the duration is 4-5 years, but what is the interest rate on average of these loans? Could you disclose how much the average rate has increased year to date or versus a year ago? Thank you.
Typically, we don't go into that kind of detail on the portfolio. I don't know if you wanna add anything, Olof, any sort of sharp, you know, sharper comments. You know, this is also so diverse. You know, we have some companies that have very little debt or no debt because it's all about organic growth and driving acquisitions, et cetera. We have some that are more leveraged. We have some that are older, some that are newer. We have different currencies, different structures. These averages, you know, are maybe not that helpful either. I think what's important is that we, you know, we have, you know, the comments that we made earlier around our philosophy and how we protect ourselves against movements. Olof?
No. Yeah. Nothing to add.
All right. No way to see how the average rate has changed compared to a year ago.
Well, you know, the value creation in our portfolio from leverage or the actual effect of interest in our value creation plans is quite small actually. Two-thirds of our debt is hedged, and it's in different currencies and different structures, and different maturities. Even if I would have that number at hand right now, it's not something which would have any meaningful impact on valuations or performance.
Maybe to add, given the fixed rate structure on this, Jacob, it means of course that we are not gonna have a material change in the existing portfolio. Of course, for new financings and as we do new investments, it's a different rate environment at which we are financing companies.
Yep.
Yeah. That should be reflected in the purchase process then I guess as well.
That's right.
Not an issue.
Exactly.
What is the biggest reason for more transactions occurring? I mean, there are some great listed companies that are seeing their valuations halved this year, but so far quite limited amount of bids. I mean, you said it's a bid spread.
Yeah.
Between bid-ask still.
Yeah. You know,
I mean, if you don't have height then.
Yeah, you know, the difference between.
What is the most important part?
Yeah. The most important part is that you know, when you're trying to take a company private, you have to gain full control of the company. While you know, if you talk to them theoretically, a public company's valued on the most recent share trading of a tiny minority stake of that business, right? That does not mean.
Yeah.
that the control of that business is worth the same. Therefore, you see typical premiums of 30-35, maybe even 40% in a typical market for M&A. Because there's a control premium to control that company and be able to do the things that we do to the companies and transforming them and making them stronger and better and faster and more sustainable. What's hard now is to find out what that premium is within sector at any point in time. Probably the sellers want a 60% premium today or 50, and we might wanna pay 25. Then it takes a little while before we get more confident and they get a little bit more patient.
It, you know, it's things like that. It's really having to do with the difference between a liquid share in a public company and control of that public company, which is materially different.
Okay. Thank you. Should we then view it that it's more likely that acquisitions going forward, it's gonna come from other PE funds that they might have, you know, an IRR or something which has a time effect? I mean, all PE funds currently sit on an enormous amount of dry powder. I guess it's in all interests to see some activity starting to go in the future.
Yeah. You know, it's, I think all sources are available. You know, you might have certain families that wanna diversify, or you might have an industrial company that needs a different kind of financing structure or some capital in to focus on their core business. Financial buyers that wanna do an exit because they have an old fund, or public to privates. All these sources are available, so it's. I don't think you can see a systematic difference right now. It's up to us to you know choose the right investment opportunities. I mean, a typical private equity and infrastructure fund, we're doing 15, maybe 17 investments over you know on average of 3-year cycles, we're doing 5, 6 deals a year.
You know, we have hundreds and hundreds of investment opportunities that we're looking at all the time. It's really about picking those the right ones. That's why we have people on the ground in the sector teams, you know, locally, all across the world, all across Asia. We're in 25 countries now. The beauty of that is that we can hopefully find those best deals to invest in, both during good times and bad times.
All right. Thank you so much for taking my questions.
Thank you.
We are going to proceed with the next question. The next question comes from the line of Jacob Ring from Nordea. Please ask your question. Your line is open.
Thanks a lot, and good morning. Just two small detail questions for you, Kim, I believe. We talked about before on the carry recognition for the second half of the year and of where you are on that. Could you just remind me the exits that was done in the first half of the year, was all the carry from those recognized in the first half, or is something left for the second half? For example, deals that hasn't closed yet, has some of it been postponed to H2, or was it all recognized in H1?
Not all of the transactions that were announced in Q1 or in H1 were closed in H1. Some of them closed even, I think, in Q4 here earlier this month. None of them would have a meaningful impact on the carry for the rest of the year or for the second half of the year.
Okay. Yeah, exactly. And also just on that, when you've been talking historically about the 30%-50% discount, let's say now that you might have started with a 50% discount, but then due to estimates maybe have come down or whatever, then maybe you need a lower buffer. Is that the right way to look at it? That you could also write down the discount, so to say, if in a scenario like the current one?
Yeah, it is possible, yes. I'm not saying that we are, but we do have the flexibility to, within this 30%-50% discount, to make an assessment on what is a reasonable discount, to have in order to not risk a reversal of carry more than under extraordinary circumstances. Yes, there is some flexibility there.
Okay. Thanks a lot. Then just a last one. I can't remember, but what have you said regarding restructuring charges on the BPEA deal? Will there be anything here in H2 or H1 next year, or is it yeah?
Well, not restructuring charges really, but there will be transaction costs. There will be some booked in the context of the deal here during the second half of the year. There were some already in H1. Yes, there will be. I don't think we've given an exact number on that.
Just a ballpark, maybe? Or?
No, if we haven't given a number, I don't wanna throw it out here. If we have, I'll give it to you afterwards.
Okay. Fair enough. Thanks a lot.
We have no further questions at this time. I hand back the conference to you for any closing comments. Thank you.
Thank you very much everyone for your participation and great questions today, and wish you a great continued Tuesday. Cheers. Bye.
Thanks.
Thank you, everyone.