EQT's rise: ‘Culture eats strategy for breakfast’

If you were trying to attract limited partners to an event this week, you may have struggled with numbers. Why? Because a large portion of the global LP community was in Stockholm for EQT’s annual investor meeting.

Between management from 70 portfolio companies, EQT’s 370 staff, its global network of “industrial advisors” and army of LPs, the meeting was “as big as they get”, said one investor.

Among agenda items, investors were treated to updates from the leadership of each portfolio company. Across the firm’s equity, credit and real assets strategies it made for what one LP described as a “full-on few days of listening”.

EQT is currently riding high. This year the firm broke into the top 10 largest private equity firms in the world, according to the PEI 300. Last week the firm closed its debut venture capital fund on €566 million.

When PEI spoke to Thomas von Koch last week, the discussion centred on future-proofing. It has been a popular refrain for the firm’s CEO and managing partner, who has been busy recruiting “disruptive” technology types both to the EQT Ventures team and to the EQT “mothership”.

The hope is that this group of tech experts will push forward the newly funded EQT Ventures platform and “future proof” the business models of EQT’s mature portfolio companies, as well as the firm itself. On a related note, entrepreneurs “and dreamers” in London are today pitching ideas to EQT, Atomico and UBER as part of the latter’s UberPitch initiative.

While it is going about it thoroughly, EQT isn’t the only private equity firm to be thinking hard about the threats and opportunities presented by high-tech developments. “All the other leading firms are thinking about this as well,” says one investor in EQT funds.

The addition of a venture unit to its platform is part of a diversification effort among asset classes, strategies and geographies. With funds investing in infrastructure, multiple private equity and debt segments and a fledgling real estate offering, the firm is becoming “the Blackstone of Europe”, as one LP put it (before qualifying this with some key differences).

In the firm’s annual report, von Koch explained the rationale for pushing the firm to grow quickly: “The private equity industry is consolidating as it increasingly becomes an integral part of the global economy. And that is actually why we are focusing on building a global, integrated, multi-product alternative investment firm, rather than focusing on one strategy limited to certain regions.”

A diverse offering – like a thoughtful approach to disruption – is certainly not unique to EQT; Ardian and Partners Group in Europe, TPG and – of course – Blackstone in the US, among others have all diversified with great success.

Beyond strategy, disruption and sufficiently strong investment performance (one LP characterises the various funds as spanning the top two performance quartiles) there is an ingredient that LPs consistently point to as a reason for backing the firm: a culture of long-termism.

Finnish pension fund Ilmarinen is an investor in multiple EQT funds. Katja Salovaara, senior private equity portfolio manager at the pension, says the culture is important to investors. “Firms will fold and some will operate a revolving door of departures, but EQT has a long-term approach embedded in the firm’s background as part of Investor AB,” she said referring to the 100-year-old investment company founded by the Wallenberg family in 1916.

That culture of longevity has led EQT to think hard about its place in society and implement various measures to soften the image of private equity (in 2012 it committed to manage all future funds onshore).

No firm is perfect. For example, as with many others, EQT is wrestling with gender diversity: among the 45 partners listed in this year’s annual report, there is only one woman (although the firm is understood to have a number of initiatives in place to rebalance this in the long term).

But EQT is doing a lot of things right. The level of detail the firm publishes on its funds, structure and investments, sets a high standard for transparency. It also invests considerable resources in the way it presents itself (see the venture website or annual report as examples of cool Nordic design). But these are just sideshows to the main event.

“At the end of the day culture eats strategy for breakfast,” says Ilmarinen’s Salovaara.