EQT AB

STO:EQT

Earnings Call Transcript 2022-Q1

[Olof Svensson, executive]

Good morning, everyone, and welcome to EQT's Q1 announcement. It's been another busy quarter as we continued EQT's strategic growth journey, launched new strategies and continued making investments and exits despite macro geopolitical uncertainties.

Together with Christian, Caspar and Kim, we will summarize and reflect on the first quarter. And as always, there will be a Q&A after the presentation. [Operator Instructions]

And with that, I hand over to Christian.

[Christian Sinding, executive]

Thanks, Olof, and good morning, everyone. In the first quarter, we've taken an important step towards building a global leader in active ownership strategies. And we continue to perform well for our clients across various funds, across our various funds. At the same time, the year has started off distressfully with the war in Ukraine and continued conflicts in other regions around the world. We're, of course, deeply saddened by these human tragedies. And thus, as the war broke out in Ukraine, we immediately urge portfolio companies to wind down any activities in Russia. We've also seen strong support from the EQT network in helping Ukraine with humanitarian needs, including from portfolio companies like Schülke Hygiene.

Turning to EQT's strategic agenda. We recently announced the combination with BPEA. And we're also thrilled to formally close the combinations with LSP and the Bear Logi team in Q1. Furthermore, EQT had quite a busy quarter when it comes to fundraising, with launching EQT X and Active Core Infrastructure and also having several other ongoing fundraisings across the group. At the same time, deal activity has continued despite the market turmoil, albeit at a somewhat slower pace compared to the very active quarters we had last year.

On the people side, we're now over 1,300 EQTarians globally, and we're continuing to strengthen the firm in terms of talent. And with that, I'm so happy to build EQT's Executive Committee with Christina Drews. She's going to join as EQT COO in June, and she's going to be leading the scaling of our operating platform going forward. And finally, we've preemptively funded the cash portion of the BPEA transaction through a bond, and we further strengthened EQT's financing structure through a larger revolver.

Next slide, please. So let's take a step back and look at our strategic journey. With BPEA, we have a scaled platform in Asia. And as a result, EQT will have a truly global footprint. And this brings several advantages. First of all, our clients have further opportunities to invest with us across geographies and strategies. Secondly, we can share knowledge and insight across global teams to be a smarter investor and owner. Third, we can leverage our platform on a global scale, be it, for example, our leadership in sustainability, our expertise in digital transformation and AI, now with Motherbrain actually being more widely adopted across the platform and with Asia becoming truly global. And like EQT, BPEA is also performing well during these somewhat turbulent times in the world. So for these reasons, the client feedback around our combination with BPEA has been overwhelmingly positive, and we're really looking forward to the closing in Q4.

Furthermore, with our position now, we have an opportunity to scale our strategies on a global basis, which I'll come to on the next page. Next slide, please. So with BPEA, EQT is going to be local with locals in 25 countries, covering around 80% of global GDP. And looking ahead, we have a long-term opportunities to scale all of our strategies now on a global basis. And to give a few examples of this, starting with real estate. We now have a team of over 60 people in Asia Pacific alone. And over time, we're going to build our real estate franchise in that region within logistics, multifamily and office, which means that we will have allowed all those 3 investment areas covered by real estate globally.

In Private Capital, we have a strong track record in North America now, and we have an opportunity to really expand our investment strategy in that region. And in Asia, of course, in addition to Private Capital, which BPEA brings, we've done now a number of infrastructure investments that are performing well, and our capabilities, they are only getting stronger with this combination. Of course, we also continue to grow organically with the platform and the expertise that we have in our business. So -- but nevertheless, we're going to continue to evaluate M&A opportunities to complement the franchise, whether it might be in specific regions or through adding thematic expertise. Near term, of course, we would primarily only consider smaller opportunities as we focus on making sure to maximize the potential and integration of our recent combinations.

Next slide, please. So we're all facing a number of challenges in the world. For example, with inflation and higher rates of interest or the war in Ukraine, which, of course, beyond the tragic loss of life has also triggered a spike in energy prices and potential food shortages across the world. There are global social inequalities, and we have the climate emergency. So at EQT, where working continuously to adapt to these types of challenges, trying to find opportunities in those challenges and also managing our risks proactively. We're really seeking possibilities to make a positive impact and create returns for our clients through active ownership, through really building the company's investments that we make. And as a result of our thematic investment strategy, underlying portfolio company performance remains strong, as you've seen, and valuations also remain solid in our funds.

Even within inflationary challenges, the combination of pricing power and productivity gains support earnings overall in our portfolio, and most of the sectors we invest in and still enjoy robust multiples. This also goes for real estate where we see stable valuations and in the themes we're investing behind and the types of assets we're investing in, a real inflation protection. Having said this, of course, we're also impacted by external factors and are following up all of our investments very, very closely.

On the exit side, it is now a little bit harder to find common ground between buyers and sellers. And even though the M&A market remains fairly active as seen in our exit of IFS and WorkWave, for example, the IPO market now is effectively closed. Historically, these kinds of IPO windows come and go. And in the meantime, we continue, of course, with driving value creation in those companies that are looking to go public. In our sectors, there's still robust interest, and we expect to continue to drive divestments this year across all of our business lines.

So how are we thinking about new investments in this market? Well, we're discussing these matters a lot, of course, in the global invested forum, and we're being highly selective. First of all, we renew our conviction in EQT's robust strategy of thematic investing. This is really about finding long-term societal needs and backing companies that can help accelerate those trends through our value-creation plans and future-proofing actions. Secondly, ensuring that we use our portfolio resources to drive full potential in each company, in each asset and truly integrating sustainable transformation into the core of every business and every asset.

Thirdly, ensuring sound capital structures designed not to maximize leverage but to support the value-creation plans, that's a have been our philosophy since day 1. Fourthly, remaining vigilant on risks to matters like gray swans. And what I mean by gray swans is things like the recent pandemic and the war in Ukraine, 2 examples that were known risks that I think we all could have been even better prepared for, but really starting to discuss those elements and making sure that our Boards and management teams are ready for external shocks.

Also, we're, of course, looking into demand costs in the value chains, pricing and cybersecurity, where we have a task force, an internal one that's highly capable, so we can really track what's happening out in all of our companies and all the portfolio companies and portfolios, so we can stay ahead of the curve. And looking more broadly, if we have our thematic investment strategy plus being local with locals in every country we invest in. So with that, our pipeline remains robust for the year. And one example of this is in the decarbonization and energy transition part of our investment strategy where we see a lot of investments that need to be accelerated in order to manage higher energy prices and also reducing a dependency on imports of energy.

So turning to the next page, kind of a case in point, we are really working to continuously raise the bar when it comes to our environmental ambitions. We were the first private market firm to set science-based targets last year and we now accelerate that reach net zero on all companies by 2040, which is 10 years earlier than required. More than 40 of our portfolio companies are already driving their formal action towards net zero and all our companies are obviously working on it and preparing it. In addition, we have new fund investments like Vinted, Covanta and Cypress Creek Renewables, demonstrating how we drive the environmental transition through either circularity, waste reduction or green energy generation -- green electricity generation.

Another interesting example is Formo, a company in EQT Ventures, which is developing animal-free dairy products, driving cutting-edge synthetic biology to become truly regenerative. Very interesting company. Another example is Oterra, which is leading the world in moving from synthetic food and colorings, which are unhealthy to natural colorings, which are much more healthy. So in total, we've recently invested more than EUR 10 billion in climate and environmental companies and assets, and we do this across various business lines rather than in a specific fund and thus, staying truly thematic. And with that, I hand over to Caspar.

[Caspar Callerström, executive]

Yes. Thank you. We've been busy when it comes to fundraising activities in Q1. And this will continue throughout the year. It's a quite crowded and competitive fundraising market out there with, I would say, most of our peers also raising flagship funds this year. And this also then coincides with the broader macro uncertainties that Chris talked about.

We expect continued strong momentum for well-established funds with strong track records such our flagship funds. For newer fund initiatives, it's likely that fundraising could take a little bit longer to complete. This year may also further accentuate the trend of clients concentrating commitments with fewer counterparties. Firms with strong performance and track records like EQT will stand to benefit. And I'm confident that we will come out significantly stronger relative to the market from this year.

Specifically, we set the hard cap for EQT X at EUR 21.5 billion last week and fundraising for EQT X will likely be materially down during 2022. But as expected, fundraising will continue into 2023 before we have the final close. In the first quarter, we also set the target fund sizes for EQT Ventures III and Active Core Infra, EQT Exeter Industrial Value VI. And we're continuing some of the fundraisings initiated last year, including EQT Future, EQT Growth and Exeter's force U.S. industrial core fund. So it's a busy fundraising schedule overall.

And as you know, Exeter has typically various fundraisings ongoing in parallel. And on that note, we previously mentioned that EQT Exeter is expected to raise at least EUR 5 billion this year, and that number is likely to be meaningfully exceeded based on the current fundraising pipeline. When it comes to Infra VI, we have progressed the preparations and further calibrated timing versus other ongoing and fundraisings. And we will like to start fundraising for Infra VI in Q4 this year. Depending on the exact timing, we may book some commitments this year, but the bulk of the fundraising of Infra VI will likely take place in 2023.

Next slide, please. We're continuously investing in the EQT platform, and we're attracting talent at a good pace. We always invest in higher head in order to secure future scalable growth and, of course, future returns for our clients. This page illustrates how we invest in new strategies, which initially have lower margins as we set up the investment teams and build a track record. Over time, we expect our emerging strategies to scale, which results in a material margin uplift for such strategy. The emerging strategies include growth, future and active core as an example. Looking at Exeter, we're actively recruiting as we build the investment organization across regions and strategies. And with BPEA, we expect to build the team once the combination closes, in order to broaden the thematic focus, strengthen the sustainability expertise and add new strategies in APAC over time.

And with that, I'm handing back to Olof.

[Olof Svensson, executive]

Thank you. Next slide, please. Thank you. In Q1, investment and exit activity continued, albeit at a slower pace compared to recent quarters. In total, we announced investments of EUR 3 billion and exits of EUR 2 billion. In terms of our key funds, EQT IX is now 75% to 80% invested, which is in line with the investment level at year-end and EQT Infrastructure V is 70% to 75% invested, up from 60% to 65% at year-end. Exit volumes have been in line with what we have expected for Q1. For example, EQT VIII sold a large part of its stakes in IFS and WorkWave. And exits made in the quarter have seen strong valuation levels. As we look ahead, we continue to plan for further realizations. However, as Christian mentioned, the IPO market is largely closed at the moment, and the high-yield market has also been more challenging as of late, although the leverage loan market remains open and constructive. These factors combined make the outlook for exits somewhat more uncertain in the near term.

Turning to investments. Notable deals in Q1 include InstaVolt and Stockland. When it comes to the different business lines, we have a very active investment pipeline in infrastructure, for example. We expect investments in areas such as energy transition, including related technology to increase from here, for example. We also see continued high investment activity in real estate where the higher interest rate environment is being reflected in our acquisition underwriting.

Turning to Private Capital. We are evaluating a number of potential private equity investments at the moment. Sources include divestments from corporates, private equity owned companies and potentially public companies. Valuations for EQT's core target sectors such as health care, tech remain high.

In the growth segment, in particular, we see a bid-ask spread between buyers and sellers, given the multiple contraction seen in public markets. As a result, this market may see a continued slower pace in near-term activity as we stay disciplined to find the right opportunities.

In Ventures, we see continued high activity levels and a somewhat more buyer-friendly market. As always, new investments are underwritten based on long-term multiple assumptions. As a result, exit multiples are often assumed to be below multiple paid at investments. And overall, as Christian mentioned, we remain focused on thematic opportunities where we invest with the trend in companies, which we expect to be resilient and perform well also in times of uncertainty.

Next slide, please. Q1 valuations were resilient across our key thoughts. On a high level, there are a few different factors impacting valuations in Q1 positively and negatively. On the positive side, we continue to see robust and high valuations for thematic assets, both within Private Capital and real assets. These are exactly the types of companies and assets that EQT owns and invests in. Underlying operating performance in terms of sales growth and profit growth has also been strong, largely offsetting any effects of lower reference multiples in public markets. As previously mentioned, our focus on market-leading companies with pricing powers means a high ability to pass on price increases.

In real estate, current contracts are largely inflation protected and fund valuations have been stable. Whilst not a major driver of fund performance, we've had a couple of examples of companies which have seen muted performance due to COVID, now performing stronger. Exits this past quarter had a positive effect on valuations as well in, for example, EQT VIII. Generally, our conservative valuation approach means we, at times, experience uplifts in fund valuations when we secure strong exits.

On the negative side, the listed companies in the portfolio have seen share price declines. Listed companies are typically valued at the current share price in our fund valuations. All these elements come together in our robust valuations. Also adding, there is no change to our performance expectations. As previously communicated, EQT VII, EQT VIII, Infra III are all expected to deliver returns above plan. The other key funds remain on plan. Remember, the expectations reflect our estimates where the eventual fund performance will come out.

And with that, I now hand over to Kim. Next slide, please.

[Kim Henriksson, executive]

Thank you, Olof, and good morning, everyone. Let's continue by having a look at the development in assets under management. In the last 12 months, AUM increased by 31% with Exeter contributing EUR 9 billion and LSP contributing with EUR 2.4 billion of AUM as of respective closing. In Q1, AUM increased by some 5%, partly driven by the addition of LSP. Remember, BPEA's AUM will not be part of the group's, and until the combination closes, which, as mentioned, is expected to occur in Q4. For reference, the BPEA AUM was about EUR 18 billion as of year-end. And looking ahead, we do expect AUM to grow this year as the various ongoing fundraises continue. But remember that when we activate a new fund, the AUM base in the previous fund generation steps down to invested capital. As Caspar mentioned, we expect a large part of EQT X to be raised this year, whereas the vast majority of Infra VI is likely to be raised in 2023.

Next slide, please. As Chris mentioned, we're now over 1,300 employees. This includes having added almost 60 people from LSP and Bear Logi in the first quarter. And in addition, we expect to have the BPEA team joining us towards the end of the year, and we may see further complementary acquisitions during the year. We're also doing very well when it comes to recruiting, developing people and attracting strong talent globally. So as a result, we expect to be a significantly larger EQT team by year-end. Keep in mind that we're always investing ahead for future scalable growth. Hiring the right people at the right pace is critical to future-proofing growth as well as future-proofing the returns for our clients.

Next slide, please. We recently raised 2 sustainability-linked bonds of EUR 750 million each. In addition, we have agreed to upsize the revolving credit facility from EUR 1 billion to EUR 1.5 billion to create additional flexibility. The proceeds from the bonds will be used to finance the cash portion of the combination with BPEA. And our strong balance sheet will then help support our growth and provide continued flexibility to follow our fund commitments, to support new growth initiatives and to selectively make acquisitions. Notwithstanding the opportunities we have, we expect to maintain a conservative leverage ratio of less than 1x net debt to EBITDA, and we have very significant liquidity. With that, I hand over to Christian to wrap it up.

[Christian Sinding, executive]

Thanks, Kim. Thank you. So we're continuing to build a global leader in active ownership strategies. The platform we're building provides multiple levers to grow and opportunities to become even more relevant for our clients. Our fund valuations have been resilient in Q1 based on strong underlying performance across our thematic assets, and we do expect our funds to continue to deliver for our clients. We recently committed our portfolio companies to achieving net zero by 2040, 10 years faster than required by climate science, and we think that's quite important also from a value creation point of view and being a responsible investor.

Now it's been a somewhat slower quarter when it comes to investment in exit activity, but we're seeing really interesting opportunities ahead. And if you think about it in times of uncertainty, our active ownership focus and our thematic investment approach becomes even more relevant and may open up some new sources for deals like the public markets. We're proactively investing in people and in EQT's platform to really continue to drive scalable growth. And we're attracting really great talent, which, of course, is the best way to continue to secure our future performance and building a very strong firm.

So with that, we will now open up for questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Ermin Keric of Carnegie.

[Ermin Keric, analyst]

So the first one was on fund valuations. Could you talk a bit more about the impact from multiples versus the operational performance kind of growth and underlying earnings growth perhaps in the holdings you have and how you kind of come up to the final mix of the companies [indiscernible]?

[Christian Sinding, executive]

Yes. Caspar, do you want to add that?

[Caspar Callerström, executive]

Yes, sure. I mean to start with, it's difficult to answer the exact mathematical proportions here. But basically, as we've said, typically, in most of our acquisitions, we have in the last years assumed and anticipated multiple contraction from where we bought it in terms of multiple and where we're expecting to sell it. So that's part of the plan, you can say. So that's one part of the puzzle. If you look at real estate and infra, I think the multiples there in general have been very stable. So what you can see is some -- and also I would also say on the health care side, also on the buy-out side has also been quite stable in general terms. So it's only a part of the portfolio that I would say is impacted from the multiple contraction. And as you can see from the numbers, all in all, that multiple contraction is outweighted by the underlying performance in the portfolio as a whole. That, of course, doesn't speak for individual companies. We will have a number of individual companies where the valuations are down, most specifically, the listed companies that we own, but all in all, the rest is outweighing that.

[Ermin Keric, analyst]

Got it. On Exeter, you mentioned that you expected to exceed the previous guidance or ambition. Was that EUR 5 billion or in dollar terms that you expected it to raise this year? And was that a net or just in capital raising and then will have some exits as well?

[Caspar Callerström, executive]

I think we -- when we made the acquisition a little more than a year ago, we gave some round guidance of where we expected Exeter to add, and that's sort of the -- that's what we're now basically saying that we will probably exceed -- given the current outlook, we will probably exceed what we said by them. But this is a gross number. So it's how much we're going to raise. But I think it's also fair to say that historically, if you look at the exits that Exeter has down, they have actually been to a large extent, done by actually selling into other vehicles still managed by Exeter. So if you compare it to our buy-out and infra businesses where the exits are typically disappearing from our AUM, that's not always the case with Exeter.

[Ermin Keric, analyst]

Then one final question just on Infra VI. Given the environment you currently see for capital raising and so on, is there anything that would -- that should lead us to believe that Infra VI should have any material difference in size from where you're seeing EQT X?

[Christian Sinding, executive]

Thanks for the question. We have not yet set the size of Infra VI. As you know, that process is quite thorough. We start with pre-marketing, which we're doing now. We build a book of demand. We look at the opportunities in the market for the investment side. Then we set the target size. And as we go through the process, we ultimately set the hard cap as we've now done in EQT X. But if I'm reading your question right, you're asking if we have any concerns around fundraising of the flagship funds. And I think it was Caspar that mentioned it that we see quite a healthy demand from our clients for our flagship products. EQT is quite well differentiated. Our funds are performing exceptionally well, and have been doing so for a long time. We have a lot of credibility with our clients. And therefore, we're confident of meeting our goals. I think where we're seeing a little bit of slowness is in the newer products where it takes maybe a little bit longer to raise the capital. But that's actually -- I think we mentioned that before, that's actually very normal through a cycle where existing products that have a long track record, fundraising is more straightforward, assuming you perform as well as we do and in newer products, it takes a little bit more time. Is that all?

[Operator]

Our next question comes from the line of Arnaud Giblat of BNP Paribas.

[Arnaud Giblat, analyst]

Yes. I've got three questions, please. Firstly, can I start with your hiring expectations for 2022. I think you talked about 1,400 for -- at year-end. Is that guidance still valid? It seems like your -- the pace is going slightly ahead of your year guidance? And secondly, I'm wondering during your commentary, you asked about maybe a bit more -- the challenge in getting investments going is a widening of bid-ask spreads and in your experience, if volatility remains, how long does it take for, I suppose, purchase price multiples to come down and let it to match what your expectations on that might be? And finally, in terms of the delay in exits, do you have strong opportunities to continue adding value to portfolio companies? Do you see opportunities to continue doing bolt-ons to existing portfolio companies?

[Christian Sinding, executive]

Thanks. I'll take the second one, and Kim can take the first one, and I'll start on the exits as well. When it comes to bid-ask spreads, I'd rather say it's how do you find an agreement between a seller and a buyer in a more disruptive market. And that sometimes takes a little bit more time. But we are seeing, as you've noticed, we've been able to drive exits. We have a very strong pipeline across our group in real estate, in infrastructure and in equity. So we believe that we're going to continue to invest at a reasonable pace, but we are continuing to be quite selective to make sure we buy the right assets during the slightly more disruptive period. Kim, do you want to take the first one?

[Kim Henriksson, executive]

Yes. Yes. On the headcount question, I -- what we've said before is that we wouldn't be surprised if we exceed 1,400 by the end of the year. That is still valid. I'd say it is likely that we will meaningfully exceed that number, given the attractive recruiting pace we've had now. We really -- it works out very well currently. And then you've seen the acquisitions we've made. There may, of course, be further bolt-on acquisitions, which may change that number further. And of course, it excludes BPEA, which we hope will close in Q4. So -- and hope and expect. And so I'd -- yes. Maybe that gives you a bit of color on it.

[Christian Sinding, executive]

Yes. And when it comes to adding value to the portfolio companies, of course, that just -- that's something we do every single day. We're -- and also, where we're continuously building capabilities is in, let's say, our value creation methodology and our approach to sustainability. They're really weaving sustainability into every strategy of every company to make them stronger and more resilient and also more valuable over time. We continue to work with our governance. We continue to work with our capital structures with the digitalization and AI with protecting the companies from a cybersecurity point of view. So that is the -- also the other important element around our active ownership strategy and why we're focusing on that across all of our investment areas is that we are building the companies and making them more valuable and stronger and better every single day. And that's the philosophy also when we're looking at new deals.

And maybe another way to answer your first question is that the sources of deals also changed a little bit. So last year, when multiples are very high public to privates were quite complicated, and sometimes even divestments from corporates were complicated because price expectations were very high. When the market adjusts a little bit, new sources of deals actually arise, and we can find -- we can kind of activate those channels. And given that we're thematic across these various sectors, and we're local with locals, our deal pipeline is always quite deep. We always have -- in every single investment strategy, we have a list of opportunities that's quite long and deep. And therefore, we're not that concerned about deal flow. So it's rather more about being selective and making the right deals, like I said.

[Operator]

Our next question comes from the line of Magnus Andersson of ABG.

[Magnus Andersson, analyst]

Yes. First of all, just a follow-up there on Exeter and the fundraising, is it possible to give us some indication of how much of the increase of AUM there in other quarter-on-quarter that was driven by Exeter, the 24 -- increase to EUR 24.6 billion. That's the first one on AUM.

[Kim Henriksson, executive]

What's your next one? Let's figure it out what you...

[Magnus Andersson, analyst]

Okay. Okay. I'll take -- yes. Okay. Okay. Secondly then, just on AUM and a follow-up on the BPEA acquisition here for the modeling. Some things are moving here in this market, obviously. And I just, just noted when I look at the Fund IV, V, VI of the BPEA that there are still lots of assets left after quite a long time, for example, in Fund V you have 75% roughly on the fund side still in place after 10 years in the Fund VI is 90% of the fund size still there after 6 years. I just wondering how should we think about duration here of these funds? It looks like the exiting process is taking much longer in BPEA than it is in your funds when we model this going forward. And just if you could give us some color on how we should model this. Finally, just on fees, Caspar, you mentioned that the fund raising environment was crowded and very competitive right now, which is understandable. Do you think that it could have any impact on the fee levels in the industry? That's my three questions.

[Caspar Callerström, executive]

Yes. Maybe I can start with the last one. And I would say that, again, when we're talking about our -- the fundraising for our large flagship funds it's really not a question about 3 levels. Of course, investors would always like lower fees, but we don't really see that's not where you compete. And therefore, we don't see that. Of course, in general terms, in a weaker fundraising market, some people may try to lower fees in order to attract capital, but I don't really see a correlation here to be quite frank. So not what we expect. No.

[Kim Henriksson, executive]

And let me come back to the first question you had, without giving any specific numbers, a majority of the, of what you see there is related to Exeter.

[Christian Sinding, executive]

Crossing first.

[Magnus Andersson, analyst]

Okay. Okay.

[Christian Sinding, executive]

When it comes to BPEA, we are a little bit restricted in what we can talk about in terms of their performance. But overall, their performance is also quite strong. It's remaining clearly top quartile. The development in their fund valuations is let's say, parallel to ours. And they have done only this year, actually, a number of exits or partial exits, and they do partial exits possibly more than we do. So they've actually had at least $2 billion of exits this year and continue to see strong interest in their exit pipeline. Deal flow is strong, and their fundraising for BPEA VIII, which we talked about last time, which we expect to grow in a similar fashion as the funds have done in the past, that's also going in line with expectations. So maybe I can answer the question in those more general terms. And I think one area where EQT has been different than a lot of our competitors is actually to divest the tail end of funds, so as you know, we have relatively young funds, our oldest funds being 2013, 2015 or so in private equity and infrastructure. And that is something that we're going to see whether that makes sense also for BPEA to drive a strategy where some of the remaining companies are exited a little bit earlier. But overall, like I said, performance and track record and fundraising are, I would say, the very similar story to ours.

[Magnus Andersson, analyst]

Yes, and going forward, would you say then that it's reasonable to expect that the funds in BPEA that the duration is closing up to your duration that you will try to shorten the period. I mean your funds is typically 10, 11 years or something like that. And from what I've seen historically, it looks like they are going to be much longer.

[Christian Sinding, executive]

Yes. And this is also a shift in the market, and we've been leading that shift with our philosophy because we think it's, you can actually drive some pretty good skew, if you're, on the one hand, running with the winners selling your portfolio companies over time, divesting them on kind of in a normal time frame and then ending the fund, gives us a bit more resources to actually focus on the companies that are really driving value going forward. The one trend, not to make it too complicated, but there is a very important trend here as well, which is running with the winners, which BPEA has done really, really well. So -- and that's something that we've done as you see whether we're investing in new funds and existing companies. We're finding other ways to divest parts and continuing to create value in the existing funds. So there are a number of elements here that play in. But I think your question is directionally correct for your comments.

[Operator]

Our next question comes from the line of Hubert Lam of Bank of America.

[Hubert Lam, analyst]

How should we think about carry for this year? Any particular guidance you can help us on this? Obviously, exits have been slower, but are there funds which you think could potentially some carry this year? Or how should we think about it maybe as a percentage of revenues or any potential range that we should think about? That's the first question. Second question is on Slide 9 of the deck. You talk about the gross profit percentage of the different strategies in merging scaling and leading strategies. Can you just give us a definition of gross profit or what do you mean by that?

[Kim Henriksson, executive]

Well, first of all, gross, you should see that Slide 9 as illustrative of the sort of various buckets of where the strategies are in their life cycle. The gross profit there exclude all of the central costs. So it's really just a cost for the investment professional organization and related costs related to that. That's kind of the broad definition of it. And on your first question on carry, as you know, we really don't give guidance on carry as carry's a function of 2 things essentially. One is the value development in the portfolio and the other is exits and especially -- well, both of those are difficult to forecast. We have -- like we discussed a solid exit pipeline, but you don't know what the market will look like towards the end of the year. Maybe I could add to that, that there are, of course -- you've seen how the value development has been so far this year, so robust. And you've seen that we have been exiting some companies. We have closed some exits that we did last year, et cetera. So we feel comfortable. But I can't give you any numerical guidance more than that.

[Operator]

Our next question comes from the line of Jakob Brink of Nordea.

[Jakob Brink, analyst]

Just two questions, please. Just for my modeling on the comments you had on Infra VI, what does that mean in terms of initiation of the fund? I see you're still 70% to 75% invested. You say fundraising will take place starting in Q4. I believe you said last thing into next year. So are your comments more related to basically late fees being booked next year and not so much fees being booked this year? Or did your comment also include any guidance on when we should expect the initiation of the fund? That was the first question. And then the second one is maybe a bit more tricky, but the divestment or sale of IFS and WorkWave from EQT VIII, how much of the discount you had applied to those 2 companies before the sale? How much is that? So basically, I'm just trying to estimate how much is the -- how much could that sort of elimination of discount absorb of potential value decline in EQT VIII?

[Caspar Callerström, executive]

Should I...

[Christian Sinding, executive]

Go ahead.

[Kim Henriksson, executive]

On IFS, and we're not going to give exact numbers on that. But again, we have in -- on a general note, we use a 30% to 50% discount for the IFS carry in our funds. And like I have mentioned before, given the environment, we have been at the higher end of that range. That's the discount. In addition, it is, of course, not at all inconceivable that divestments were made at the value that exceeded the value that they were booked in our books. So there could be a sort of double effect like that in -- from those divestments. On the Infra VI, the comment we made was related to the fundraising base rather than the investment base. As you know, we may start investing earlier based on bridge financings, et cetera. And if that happens, then we will also start booking fees from that time period when we start investing. Then whether they will be booked this year or next year, we don't know. It depends on the investment phase really.

[Caspar Callerström, executive]

But I mean, technically, if you would do the investment on this side of the year and raise money on the next side of the year, the late fees will obviously occur next year.

[Jakob Brink, analyst]

Yes, of course. Yes. I was just more thinking if there is any sort of correlation. I understand you can do bridge financing, but also given you have some room left in EQT -- Infra V. I was just wondering if you would try to match the fundraising more with the investments, but I understand it doesn't have to be that way.

[Caspar Callerström, executive]

We basically -- I think we've been pretty clear with that before. We basically -- when it comes to flagship funds, we don't want them to overlap or to sort of hit each other in that sense. So the pacing of Infra V is basically made out of the expectations of the fundraising of EQT X.

[Operator]

[Operator Instructions] Our next question comes from the line of Jacob Hesslevik of SEB.

[Jacob Hesslevik, analyst]

Just two questions from me. The first one is on higher inflation environment. I'm just curious what shift you're seeing taking hold today of in the midst of rising rates, inflation, supply chain challenges. We also have geopolitics and the return of the great power complex. So what are the implications that you see from investing from all of that? What are the new risks and challenges does that create? And could you maybe talk a little bit about how you're evolving and positioning EQT to capitalize on all of this changing environment? That's my first question.

[Christian Sinding, executive]

Yes, so I have talked about it during the -- during my introduction. And if you look at our thematic investing approach, we have relatively few companies that have, what should I call it, complicated value chains. So we have relatively few companies that have really deep, broad manufacturing structures around the world, looking at private capital that is first. A lot of our investments are in health care, in TMT, in tech-enabled services, in industrial tech, where a lot of the value created is actually through innovation through the technology itself, the provision of services, et cetera, which is more local often. So we are not like -- I say, the private equity world was 15, 20 years ago where we owned a number of engineering companies and more manufacturing bases and also even a lot more consumer-facing businesses, retail, et cetera. So none of those elements are present in our portfolio.

So therefore, in private capital, what we're seeing is you see some energy prices rising, we see some wage inflation and possibly some inflation in terms of goods that you need to deliver your services. But given the pricing power, the types of companies we're buying, which are very typically market-leading in robust industries where you're providing quite essential services or products, we are not seeing a particularly negative effect. And in certain circumstances, actually, our pricing power exceeds any of those inflationary tendencies.

If you look at infrastructure, that is truly local infrastructure, essential services that are either on the social side or driving energy transition or on the technology communications side. We're one of the world's largest owners of broadband fiber, et cetera. And there we see -- anywhere else is the same. We see some inflationary tendencies. But given that these are truly essential services, strong pricing power, very robust market positions and typically, they're local or regional in form, and even more so on the real estate side, which is real estate is, by definition, a local business. So if you break it down in those 3 categories, we're -- we see continued strong sales growth, strong margins across the group, and we're able to manage the situation pretty well.

The other area where we're staying very vigilant is in cybersecurity. That is -- I mentioned also that we have a special cybersecurity team that works with all of our portfolio companies to make sure that all of these -- all the companies are well protected and staying ahead of the curve there as we see a lot more risk in the cyber world than we have in the past. So hopefully, that helps give a little bit more color as to how we break it down. The -- what we also do is in our investment committees, in our portfolio review committees, we actually follow up every single company on all these questions. And then we bring that up to the portfolio level and up to the group level. And that's why we remain confident on performance.

[Jacob Hesslevik, analyst]

Great. Very clear. And my second question is number of employees increased by 159 in this quarter. And Kim, you mentioned it could be over 1,400 at the end of the year. So my question is just how should we view the split between the remaining quarters? Do you have a seasonal strong inflow hiring process in the first half of the year? Or is it evenly spread out over the full year? And maybe you could also please remind me of how many employees BPEA currently has?

[Kim Henriksson, executive]

Yes. And on the -- well, I think we've said that it may well exceed 1,400. And I think we've guided now that it could exceed meaningfully that given also the acquisitions that we made. Historically, the pattern has been actually more geared towards the latter part of the year. But during COVID, et cetera, that -- it has looked slightly different. So I can't give you a sort of mathematical percentage per quarter really what it will look like. But historically, it's been geared towards -- more towards the latter part of the year. Secondly, again, remember that there may be other sort of add-on acquisitions here taking place during the course of the year. And then as mentioned in BPEA. And obviously, they are also growing as we speak. So they will also add people, but they had 236, I believe, as of year-end.

[Operator]

And we have no further questions on the telephone lines at this time. Please go ahead, speakers.

[Christian Sinding, executive]

Okay. With that, we thank you very much for your attention, for your support of EQT and all your questions, and have a great day. Thank you very much. Bye-bye.

[Olof Svensson, executive]

Bye.