EQT AB

STO:EQT

Earnings Call Transcript 2020-Q2

[Operator]

Welcome to the EQT quarterly announcements January through June 2020. [Operator Instructions] Today, I am pleased to present Christian Sinding, CEO. Please begin your meeting.

[Christian Sinding, CEO & Managing Partner]

Good morning, everyone, and welcome to our Q2 2020 announcement. Today, you're going to hear me and Kim Henriksson, our CFO. After the presentation, we're going to open up for a Q&A as normal as well. First of all, we hope you're all well. Of course, we are still in the middle of the pandemic that's ongoing in many places around the world, although many of the geographies where we're investing are now actually coming out of that crisis. We, as everyone else, don't know when things will go back to normal circumstances or exactly how normal will look. And given that the buyers continue to be present, we remain watchful. Clearly, the COVID-19 continues to affect us all one way or another. However, this also gives us an opportunity to contribute to the new normal, both as humans and as business leaders and also as investors and owners. Looking at EQT, this means running our business in a business-as-usual type of way as much as we possibly can, but also really taking this opportunity to build and strengthen the firm for the future. We are delivering on our refined strategy and our priorities as a firm. And we continue to invest thematically and to support our companies to stay truly relevant for the long term. Internally, we're trying to capitalize, together with our portfolio companies, on the creativity that comes with this crisis as well and on how to seamlessly work remotely across offices with our customers, with our companies and helping our companies do the same. And we know now from this experience that we can actually really interact with full quality and energy without traveling as much as everyone has done in the past. And this is a good and profound impact on how we work and also how we take care of our planet. But it also means we need to continue to stay on the forefront and have the right technology and the right approach like we have had now with our digital Annual Investors Meeting and our Annual General Meeting as well, both of them which went quite well and will continue to improve as we learn more and more about using this new type of technology for everything we do. As you know, we're driven by our purpose and that purpose is future-proofing companies and making a positive impact. And the key for us is thus to have a broad stakeholder approach and a long-term perspective on the future. This includes, of course, safeguarding our values and our culture, which we've been working hard to do during this time when we're not so much together. And it also means staying disciplined to make sure -- and strong to make sure that we can come out even stronger and even wiser after this crisis as we did after the other one, the financial crisis some years ago. Now we can move over to the first page of the presentation, Q2 -- sorry, the slide -- there we go, called, executing on our strategy. What I want to say here first was that we are -- this is our summary Q2 announcement, which means that we are going to present our financial statement -- full financial statement on August 20, and today is our summary. So it's going to be relatively short and sweet. When it comes to our strategic priorities, first of all, we continue to secure good deals and exits in this complicated market, although we're doing that at a somewhat slower pace as we've indicated before. We'll come back to some more detail on that later. Fundraising is exactly going relatively well. Things are taking a little bit more time, but there's good fundraising momentum. EQT IX is running according to plan, as you've seen from our announcements. And we have also launched recently Infra V fundraising a little bit ahead of schedule. To be clear, the launch of that Infra V fundraising means that we are actually not going to pursue the bridging option that we call the PIV, but rather go straight into the fundraising and investing of Infra V. When it comes to our new investment strategies, we're continuing to build our plans to create the growth investment strategy and also our Asia Pacific strategy. With regards to EQT Credit, we have found a new home for that business, and they will be joining Bridgepoint, which we think is very good, a great solution for all parties involved including our customers. And we'll talk a little bit more about that later in the presentation. Finally, we're continuing to pave the way for a more sustainable tomorrow with our focus on diversity and climate. Next slide, please. On Page 3 here, our investment activity has been slower post-COVID-19, but opportunities still exist. And we see that activity is picking up again, and you've seen that from our announcements. We remain really faithful to our thematic investment approach and mentioning a few investments that we made over the last month. I'll start with Schülke health care business, which is really spot on during this crisis, and the company has performed very well. In the EQT VIII fund, we have Freepik technology in the EQT Mid-Market Europe. We've done a large add-on acquisition in SUSE software with the add-on of Rancher Labs. And on the Infrastructure side, we entered into a new scheme implementation agreement to acquire the retirement village company, Metlifecare in Infra IV, and we are very happy to have reached an agreement there with the shareholders. In total, EQT has invested EUR 1.3 billion in Q2, of which EUR 0.4 billion was within the Credit business line. Post period, we have invested or committed several -- additional EUR 1 billion. We'll come back to more of that in the next announcement. On the other hand, with the acquisition of IFS and the exit of IFS from EQT VII, we terminated the commitment period of EQT VIII and have now started the commitment period of Fund IX, which means Fund IX as of July 14 has started generating management fees. The remaining funds in EQT VIII will be used for add-on acquisitions and strategic capital injections over time. On the Infrastructure side, Infra IV is also quite close to being fully invested. So moving back to exits. Like I said, activity has been lower, but we've actually done some quite nice exits over the last quarter or so. Most recently, IFS Software, as I said, from EQT VII. And during the quarter, we exited both Hector Rail from Infrastructure, and we IPO-ed Musti in Q1 in Finland, and that was from the EQT Mid-Market Fund. When we look at the expected returns for our key funds looking forward, we continue to expect that they will deliver according to plan in Private Equity and in Infrastructure II and IV. We expect that Infrastructure III will continue to deliver above plan. However, as we mentioned before, the value creation of our portfolios will take a little bit longer and it means also that the exit pipeline is continuing to be skewed a little bit beyond this year into next year or later. Looking at valuations versus Q1, they have been quite resilient with several increases in key funds during Q2. And again, that's really connected to our thematic investment strategy and the sectors and types of companies that we're invested in. Moving over to fundraising in a bit more detail. Our main focus now is raising Infra V and finalizing the fundraising in EQT IX as well as our continuous fundraising of Public Value. As previously announced, the target size for EQT 9 IX is EUR 14.75 billion and the hard cap is EUR 15 billion. I'm quite happy with the progress that we're making now and the fundraising is running according to plan. We expect to be materially concluded in the fundraising during the third quarter. Importantly, we see a strong pipeline of thematic investment opportunities to deploy the capital in new fund as well. Turning over to EQT Infrastructure V. We announced a target size of EUR 12.5 billion, and we expect fundraising to take a similar amount of time as you have seen for EQT IX. Finally, regarding EQT Real Estate II, that fundraising was materially concluded as of Q2. A couple of other things I'd like to mention. One is the ESG-linked credit facility that you probably saw as an announcement that helps support the EQT IX fund. It's quite a large facility, started off at EUR 2.3 billion. It's the first of this size in the global fund -- financing markets and it's really an integrated -- or an example of EQT's integrated approach to sustainability and how we're trying to connect sustainability to everything that we do, including how we use the capital markets. Furthermore, we have our Statement of Purpose that we launched together with our annual report, and that is really continuing to make a difference. It's our guide star and has been that since the beginning of EQT's foundation. We have now strengthened it, firmed it up and continue to communicate it internally and externally to show that being a purpose-driven firm is really key to long-term success. We can then go to the next page. We've seen this before, but we like to show it because we want to show you that we are on a long-term growth journey, and we have a continued ambition to grow and transform and continue to be on the forefront. We are driving that path forward to becoming a global leader in active ownership strategy in private markets. We have now experience for more than 25 years of various cycles. And we've experienced, of course, a number of crises and bumps along the way, including this year. What we try to do in these circumstances is to learn as much as we can, strengthen the firm, drive the changes necessary to improve and also find new opportunities, which I'll come back to a little bit later. Coming out of the last financial crisis, the large one in 2008, 2009, we were one of the few firms that actually came out of that with a larger Private Equity fund than before the financial crisis. And we also were able to start some new initiatives, including EQT Infrastructure, which, of course, now is one of our flagship funds. The key behind all that is to keep our culture together and have the right people and the right strategy in place, and that's what we're continuously working on internally. With that, we can go to the next page on a little bit of the COVID-19 impact. As I said in the beginning, we are impacted by COVID-19, but we continue to be quite well positioned. We've stayed very close to our portfolio companies taking the necessary actions, both to help those companies that are relatively few that were in a real challenge, but also to take advantage of opportunities, including add-on acquisitions and improving on digital solutions and other areas to build the businesses. And our philosophy, the way we're thinking about it, although many societies are starting to open up, particularly, like I said, in our regions -- or our core regions, it is still not possible to predict the final economic ramifications of this crisis. So what we're doing internally is continuing to hope for the best, but we are planning for the worst. So we are ready for whatever may come our way. On the investment strategy side, we've also taken this opportunity to really dig in and make sure that we sharpen our investment strategy for the future and looking at what trends will be accelerated in a positive sense and what trends will be accelerated in the negative sense. What we're trying to look for now in the future is continually finding opportunities where our thematic investment approach can work. Some bullet points there that I can mention now that we're going to be focusing even more on are digitalization and new ways of interacting, supporting those trends. Finding and helping more innovative health care solutions around the world. We have made quite a few investments in health care IT and health care solutions. We'll continue to do that across our business lines. Strong essential infrastructure is key. How important the fiber networks of the world and broadband have been during this crisis, for example. Clean water is very important, also clean energy. And sustainable solutions for a cleaner planet, whether it's environmental technology or similar. And finally, as we've seen from this crisis, value chains are being impacted and that will drive change and need for investment, the need for automation, need for simplification, and we're trying to find investment opportunities behind all of those trends that I just mentioned. What that means is that, in essence, we are looking to find companies, which can really help create the future and then thus being -- investing with the trend as we've done since the beginning of EQT's foundation. On the exit side, like I mentioned, a little bit less likely to have many exits until market conditions improve, although we have been able to execute on some and there probably will be a few more over the coming 6 to 12 months. The bid-ask spread between sellers and buyers are increasing during a market like this. And of course, financing is a bit more complicated and there are certain sectors that are very difficult to get deals done in. But we have a young portfolio across our investment strategies with an average age of 2.5 years in our key funds. Kim is going to go through the financial effects of the exits in a bit more detail in a few minutes. With regards to the portfolio, we see no change in the estimated capital need for the portfolio companies and our key funds. And to remind you, it remains less than 5% of committed capital as we also communicated in Q1. Looking forward, we're carefully optimistic on the current portfolio performance, and I gave the indications earlier. Reason for that, again, our thematic investment approach; our preparations for a potential downturn, which where we ran scenarios for every single company and every single portfolio; and also our governance model where we're really able to take action and support all of our companies during times of crisis. Finally, looking at EQT AB itself. We have a strong balance sheet and we have a strong liquidity position, and we think it's very good in times of crisis like this. Also, it will give us an opportunity to take advantage of this market to drive strategic initiatives, including potential add-on acquisitions. You can go to the next page, I'll comment more on that. Starting with our -- on our strategic plan, our growth initiatives, the first one, and we can actually call it EQT Growth. This is part of our Private Capital business. It's an opportunity to invest in a market segment between Private Equity and Ventures, where we have quite a bit of deal flow. We see a lot of opportunities, but we do not yet have a dedicated strategy for that market. It's really an area of high strategic logic for us given our strong Private Equity business in Europe and the U.S. and enables us to use our local-to-local strategy together with -- also with our unique Motherbrain artificial intelligence unit to find and help develop fast-growing companies. So we think we're going to have a fairly unique and interesting proposition here when that's ready. Our preparations now include building up the team, setting the strategy and also reviewing some transactions. However, we're doing this at a measured pace. When it comes to Asia Pacific, we're also there firming up our strategy and building out the team to continue to grow in Asia Pacific, and I think you saw that also earlier this year with opening our Sydney office and we're also strengthening the team with new hires as we speak. On Real Estate, our scaling is ongoing. Of course, the Real Estate business is, in varying ways, impacted by COVID-19 as well, finding really interesting new opportunities, also a few challenges. But we believe the real estate space is actually very interesting and attractive for the long term. And here, we're continuing to also build up the strategy, build up a team to be able to create an even larger and more exciting business. On potential M&A. Of course, we're fully focused on our current business and our current portfolio and building them. But we are reviewing some attractive investment opportunities, and if any of those materialize, we'll, of course, keep you informed. Finally, when it comes to Credit, we've concluded our strategic review. And like I mentioned, we've made an agreement to sell the business to Bridgepoint. We think Bridgepoint will be a great new owner. Our team is very excited to join them, and there's quite a similar philosophy of investing. And we expect that transaction to be completed sometime in the fourth quarter. I also wanted to mention on the EQT Foundation, which is the foundation we started when EQT went public. We have now recruited a leader for EQT Foundation to be able to drive our philanthropic initiatives there and that is Cilia Holmes Indahl, and we welcome her to the team as well. So with those words, I actually will now hand over to Kim, our CFO. And then after that, we will round off with the Q&A.

[Kim Henriksson, Chief Financial Officer]

Thank you. Thank you, Chris. Can we go to the next slide, please. So I would like to start with a page that I have shown before to reiterate that our way of thinking about the business remains. EQT is a performance-driven firm, which means that everything we do start with generating good and consistent returns to our fund investors, and that is as true now as it was 6 months ago. So we are convinced that good, risk-adjusted fund returns compared to the alternatives that are available to our fund investors will drive growth in our assets under management. And growth in our AUM will, as a result, generate income, management fees, carried interest and investment income revenues to EQT AB. And the management fees are, as you know, contractually recurring. And the carried interest revenues, they're an integral and essential part of the long-term business model we have. And finally, on our cost base, it's mainly our people and it's other costs driven by the number of employees. Next slide, please. So let's move over to value creation. And valuations during Q2 have shown resilience, as Chris mentioned, with majority of the key funds having somewhat improved their gross MOICs during Q2. Having said that, we are, in some cases, still below the valuations as of year-end. And this will also impact, for example, the investment income line in our P&L. As have been said, the impact from COVID-19 is that realizations are expected to be delayed and take somewhat longer in the current market environment. But the long-term value creation expectations remain. And as you can see here, all the key funds remained at least on plan while Infrastructure III remains above plan. And as a reminder, we have defined on plan as a gross MOIC between 2 to 2.5x for Private Equity and 1.7 to 2.2x for the Infrastructure funds. So within such range, it's thus possible to estimate what we expect the carried interest to be. Not exactly the timing of when carry will be recognized on the P&L, but the magnitude of such carry. Next slide, please. Our assets under management, they're largely unchanged from Q1. And also, if you look at it across the last 12 months, which is a more relevant period given our long-term business model, the AUM is largely unchanged. And during that time, we've had gross inflows from Real Estate to and from Public Value, as well as from Ventures II. And simultaneously, we've had some additional investments and exits in funds generating fees on net invested capital, such as, for example, EQT VII and Infrastructure II. So there's a solid base of assets under management, providing recurring revenues. And as a reminder, again, our definition of AUM is such that only assets and commitments that are fee-generating are included in the AUM. This means, for example, that commitments to a new fund, they are only included as of the date when we have activated such fund. And as you saw after the reporting period, we have now activated EQT IX. But given that this was after the period end, it is not included in the numbers on this page. And let us come back to the mechanics a bit more in detail later in the presentation. But as Chris mentioned, we expect the fundraising to be materially concluded during the third quarter, which is also, from a financial reporting point of view, the main driver then. Next slide, please. A reminder also on carried interest. So carry recognition will require an underlying positive development of fund valuations and typically exits in -- of portfolio companies. And the rule of thumb is that initial recognition commences once you have 1.7 to 1.8x gross MOIC is reached and include a few exits. And this would typically be 4 to 6 years after first investment. The 2 key funds, in turn, to start generating carry according to IFRS, are EQT VII and Infra III. And for EQT VII, our current gross MOIC is 1.7 and we've had 3 -- we had, had 3 exits at this point in time. And for Infra III, our current gross MOIC is 1.6 and we've had no exits so far. Chris mentioned a little bit about the exit environment that it's somewhat less supportive than in the beginning of the year, and we expect this to impact the timing of recognition of carry as well. But as per the previous slide on our expectations for the funds, we're still on plan or above plan to reach our gross MOIC targets. But similar message to Q1, that we do expect a delay compared to our earlier plans. So if we take EQT VII as an example, at year-end, we did not have any IFRS carry from EQT VII when MOIC was 1.8. And now it is at 1.7. So like-for-like, the portfolio is down around 10-or-so percent year-to-date. In order to recognize carry in 2020 from EQT VII, we would require both exits in 2020 and an increase in value to more than compensate the recent reduction. Now we did see an exit in early July with the sale of IFS, but valuations remained below the level at the start of the year. So with what we know now, we will not recognize carry on EQT VII this year, albeit we are close to the mark. Next, slide, please. We have said this before that the head count at EQT is a reasonable proxy for our cost base. We have now added 11 FTE+ during the quarter and 36 year-to-date, reaching a total of just above 740 FTE+, of which then actual FTEs is about 688. Recruitments are currently taking somewhat longer and we have also decided to pause recruitments unless they're highly strategic. And this is an important proviso because even though this approach is still in effect, we are investing in people still and those investments would primarily be focused on business areas where we're expecting significant inflows of capital in the near term or where we're building a new team. Next slide, please. A brief update on Credit then. We did initiate the strategic review of Credit because we felt the growth avenues were further away from EQT's core. And now by divesting Credit, we are able to focus time and resources on the areas where we can leverage the EQT platform more, so for example, within Growth or Public Value or the APAC strategy or Real Estate. As you can see in the figures in the Q2 announcement, Credit is included in those. However, in the half year report due on 20th of August, we will report Credit as a discontinued operation and present our financials then with Credit broken out. Let me revert to that shortly. We have not disclosed the consideration received for the Credit business. But as you know, the EBITDA for Credit -- the segment Credit was EUR 12 million in 2019 and we have received a fair market multiple for this kind of business. So that should provide you with an order of magnitude. If you apply Credit's share of EQT's AUM or revenues or earnings to EQT's market value, you will overestimate the purchase price. Next slide, please. So as an illustration of Credit's contribution to the group in 2019, you can see here that Credit stood for approximately 10% of our AUM, 6% of revenue and 4% of EBITDA. So what we will do now in -- starting from the H1 report due on August 20 is to extract Credit from all lines in the P&L and report only the net income from that business segment Credit on one line called net income from discontinued operations. And the same mechanism is through on the balance sheet side, but the balance sheet effect is fairly marginal for the time being. So hope that's helpful. Let's move to the next slide, which is an educational slide here. Before I hand back to Chris, I just want to revisit some of the mechanics behind fundraising and management fees now that we have activated EQT IX after the Q2 period end. And this may also be relevant for EQT Infrastructure V if we close out EQT Infra IV for new investments, given the current investment pace and percentage investment. So step 1 in the illustration here is the last new investment is made in an existing fund. At that point, the investment period is then closed and fees in that fund are based on net invested capital of closed unrealized investments, i.e., what we call unrealized cost for each 6-month period. So step 3 here then, the successor fund is activated and funds -- and the fees are based on commitments to date in that fund. But importantly, the closed out commitments by year-end is then the driver for intra-year revenues because new commitments they pay fees as if they were committed from first fee date resulting in what is called catch-up fees or late fees. That is an important element here. So -- and then the final close of the fund takes place and final catch-up fees are generated from any new commitments into the fund. So applying this to EQT IX, what is relevant for our P&L? This year is what the closed out amount is at year-end, and as we have now mentioned several times, we expect the fundraising to be materially concluded by end of Q3. And assuming we then close out Infra IV -- or close Infra IV for new investments in the fall, which is a reasonable assumption given that the fund is already 80% to 85% invested, what affects our P&L this year is then the amount of closed out commitments by year-end. And we do expect to close out sufficiently to continue to invest from the Infra business area. So with that, I would like to hand back to Chris for some closing remarks.

[Christian Sinding, CEO & Managing Partner]

Thanks, Kim. We're on the final page now, 16, with our financial targets and dividend policy. Our long-term financial targets are reiterated today and unchanged. They are: first, with regards to growth, we expect that our total revenue growth will exceed the private market's long-term growth rate; on profitability, we expect our adjusted EBITDA margin to be around 55% to 65%; and our dividend policy is to generate a steadily increasing annual dividend in absolute euro-denominated terms. Furthermore, like I mentioned earlier, stay tuned for our half year report on August 20 that will provide more financial details, and we'll dig in a bit further into our business. We look forward to presenting to you then. I'm sure it will still be in digital form, but that's also relatively effective. So with that, we're ready for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Arnaud Giblat of Exane.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

I've got 3 questions, please. Firstly, I'd like to -- if you could help out with your hard cap -- your target for Fund IX at EUR 14.75 billion and a hard cap at EUR 15 billion. I'm wondering what you make up the hard cap because, I mean, in quite some cases, including for yourselves, you've exceeded that hard cap. So how should we be thinking about that number right now? And secondly, you've talked about the potential for M&A and continuing to do bolt-on for your business. What we've seen, at least on the public markets for traded -- on the traded public markets for B firms is quite a significant rerating of publicly listed companies in the U.S. and in Europe. How does that -- how are you thinking about valuation in that context? Could we see deals be more funded by -- potential deals being funded by equity issuance? And thirdly, the -- could you perhaps give us a bit of a commentary on how you're thinking about debt capital markets? You mentioned during your presentation that it was difficult. How are you seeing things evolve? Should we be looking for more normalized debt capital markets in the months or quarters to come?

[Christian Sinding, CEO & Managing Partner]

Thanks. I'll take those. On the hard cap versus the target, actually, historically, EQT is typically actually stuck to our hard cap. It's something we normally don't break through, and that's why we spent some time setting it and we set it several months after we set the size of the target fund. So hopefully that answers your question on that one. On the M&A valuation of add-on acquisitions, it's -- valuation is also relative. So it's a complicated question, it depends on what type of business you're looking at, et cetera. What we, of course, try to do since we're in a people business, if we were to do an acquisition, we would make sure that a significant component would be in EQT shares so that we can have the same incentives to continue to build EQT for the long term. Of course, that has to combine with other incentives to drive investment performance, which ultimately is the most important in our business. So of course, the fact that EQT's share is valued in a good way means that we have some opportunities to do that. But time will tell whether we're able to do an add-on or not. As you know, the M&A markets are fickle. Then when it comes to debt capital markets, the debt markets are improving continuously. I think you've seen that in some of the larger deals that were a little bit complicated earlier this year for some other players in the market. Those are starting to clear. New deals are a little bit more complicated with large financings. I'd say medium-sized and smaller financings are absolutely possible and the financial markets are in relatively good shape even though, of course, there are a number of companies out in the world and economies that are struggling due to COVID. So versus our comments in Q1, the debt capital markets have improved quite a lot, but there's still some challenges. It takes a little bit longer time. The fees are more expensive. And the terms are a little bit more -- a little bit stricter than they were before the COVID situation came about.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

That's very clear. Could I have a very quick follow-on here just on Infrastructure? So your Fund IV is nearly fully invested. You're raising Fund V that may take up to 6 months. What happens in the event that you find out a really attractive Infrastructure deal to do in the coming quarter?

[Christian Sinding, CEO & Managing Partner]

Well, the way that it works is that we activate a new fund when we've had a close on a certain -- on a capital commitment in that fund. So -- and we keep the previous fund open until that's the case. So typically, it's seamless, a little bit like you've seen between EQT VIII and EQT IX.

[Operator]

Our next question comes from the line of Liz Miliatis of Bank of America.

[Elizabeth Miliatis, Research Analyst]

Just 2 really quick ones. Firstly, on carried interest. I mean, it seems like there won't be that much recognized for 2020, particularly with your comments surrounding EQT VII. But in 2021, are you thinking that will sort of perhaps get close to pre-COVID levels or what the forecast would have been pre-COVID? Or will there be some sort of impact, do you think, still in 2021? And then a really quick question on the Real Estate II fund. Would you be able to tell us how much you ended up raising for that?

[Christian Sinding, CEO & Managing Partner]

Thank you. Kim, will you take those?

[Kim Henriksson, Chief Financial Officer]

Yes. I can. On the carry, I mean, we're not going to give carry guidance years ahead here, but of course, we're carefully optimistic about the opportunities for both value creation and exits in 2021, maybe I would phrase it like that. And with regards to Real Estate II, we had EUR 950 million or so closed out by the end of the quarter, and the fundraising is still open but sort of materially concluded. So that should give you the sufficient information on that.

[Operator]

Our next question comes from the line of Ermin Keric of Carnegie.

[Ermin Keric, Research Analyst]

So my first question was, could you just walk us through sort of the mechanics when you decide to transact with IFS because I suppose you could have kept that one within EQT VII as well if you see good valuation -- or good value creation for the future in the company as well.

[Christian Sinding, CEO & Managing Partner]

Yes. Thank you. In the way that we think about those kinds of transactions is -- in relatively few circumstances, we see that companies we own continue to fit very well within EQT's investment strategy, how we create value and that there's still a lot of value creation left, although we've already created quite a bit of value. And Private Equity is a particularly interesting field because our funds are limited in time. So what we have to find the right balance of is to own companies, create value with within the next -- within the time frame that's needed, but not to sell them too early. So what we're trying to do with this transaction that we've done a few times before is make sure that we get a very solid and good exit from EQT VII, which is a fund that is in exit mode and will continue to be so while finding a new owner that can own the company for a longer period of time to really drive that next phase, the value creation, that we're quite confident about. Of course, this is -- since those funds are controlled by EQT, we have a process around this, which means that a third-party independently run process has set the valuation of the company. So we had 2 investment banks working with us running a process to sell the entire business, but we ended up getting offers for the business where a sale of a minority was more attractive, and therefore, we decided to partner with TA Associates and reinvest from EQT. So there are a number of elements that come together that make sure that this is handled in a -- in an appropriate way and also, of course, ultimately with the interest of our investors in mind.

[Ermin Keric, Research Analyst]

That's very clear. And then 3 a bit shorter questions. So in Q1, you gave us sort of a like-for-like value change. Could we have an update on that? And then sort of more general market trends, with the turbulence from COVID, do you see sort of an increase of the trend that fundraising is perhaps concentrated even more to larger players as yourself while perhaps your smaller peers are struggling a bit more on the fundraising side? And then the last question is just with the divestment of Credit, you have a very strong balance sheet from before and that strengthened further. Could we see any alteration to how you think about dividends in the near term to sort of work with the balance sheet and maybe make it a bit more slim?

[Christian Sinding, CEO & Managing Partner]

Yes. Do you want to, Kim, take the value change?

[Kim Henriksson, Chief Financial Officer]

Well, on the like-for-like value change, I can comment on that. I guess we gave 1 bullet point or something to give you a sense because it was in the midst of the COVID pandemic, but it's not a data point that we intend to sort of provide on a continuous basis. Obviously, you've seen how the MOICs have developed during the quarter so it's in the -- gone in the right direction from Q1. And the market trends, Chris, I leave that to you.

[Christian Sinding, CEO & Managing Partner]

Yes. Yes, there's been -- generally, what we expect in private markets and actually in the global economy as well is that those -- the trends that were there pre-COVID are going to be accelerated, whether they were positive or negative, simply put. And before COVID, we saw that fundraising was being concentrated to the larger players on the one hand and also to niche specialists on the other hand. And I would expect that to continue. I think what's been proven now over the long term is that the larger players like EQT deliver more consistent returns in the long term. That's ultimately what our customers are requiring and needing to meet their obligations. So in that sense, you're right. And when it comes to our balance sheet, if I remind you, the way we want to -- or we will be using our balance sheet is to support our growth strategies: so to support EQT Growth, to support the Asia Pacific strategy, to support Real Estate and to make potential add-on acquisitions. So we don't have any plans to change that, and we believe that those initiatives together will require a material amount of capital to really be successful. Of course, if one day, we believe that our balance sheet is -- if we have too much liquidity, of course, we'll review our dividend policy, et cetera. But it's far too early to discuss that now.

[Operator]

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

[Magnus Andersson, Research Analyst]

A couple of short ones. First of all, when it comes to EQT VII, I remembered that during the Q1 statement when the MOIC went down to 1.6 from 1.8, you mentioned that it was primarily due to 1 particular situation. Now you're back up to 1.7, I just wanted to know if that situation now sorted out, which I think can mean that the MOIC continues up or...

[Christian Sinding, CEO & Managing Partner]

I can take that one. I think it's a bit more complicated because, of course, we have a number of companies in that portfolio. And some are accelerating their value creation through COVID, some are right on plan and some are -- just a small few are more impacted from the leisure and travel space. So I'd say it's a combination of elements, actually.

[Magnus Andersson, Research Analyst]

Okay. So because in Q1, it sounded like the pretty sharp drop there was due to 1 larger situation?

[Christian Sinding, CEO & Managing Partner]

Yes. The other way that I can say it is -- and we don't like to talk about specific companies so much. But what I can say is that we've -- we don't expect to need any more capital than we said in Q1 and we've also seen that some of our companies are actually able to really improve and drive their business during this period of time. So when you look at the portfolio, there's no single factor, including that single company, which is driving it. It's a number of things together.

[Magnus Andersson, Research Analyst]

Okay. And then just on head count outlook for the second half of the year. You said you had stopped hiring unless it was strategic -- very strategic hirings. Does it mean that we should expect head count to be flat in the second half versus -- from here?

[Kim Henriksson, Chief Financial Officer]

I can take that, Chris. No, the head count will continue to go up towards the second half of the year for 2 reasons: that the hiring force we've initiated is not complete, i.e., we are still hiring for strategic situations; and secondly, because there is a delay in hirings always. So even people that were signed before the hiring force have not all of them started as of yet. So there's still a trickle of personnel coming in. So it will continue to go up towards the second half of the year.

[Magnus Andersson, Research Analyst]

Okay, good. And finally, just on the Credit divestment. You showed us the figures there from your gross segment result of EUR 12 million in adjusted EBITDA. Is that a good representative number for full year 2020 because if I recall correctly, I think it was almost twice that level in 2018, but I don't know if there were some one-offs or anything in there?

[Kim Henriksson, Chief Financial Officer]

No. One-offs -- not, but no, I'm not going to give sort of a 2020 forecasted numbers for Credit here. But there was a reason for mentioning the '19 number.

[Operator]

Our next question comes from the line of Gurjit Kambo of JPMorgan.

[Gurjit Singh Kambo, Head of Diversified Financials Research]

Thanks for the presentation. Just a few questions. Firstly, in terms of the infrastructure Fund V, I think you said that's been launched now. Just trying to get a sense of it feels as if the equity fund will close, hopefully, by the end of this quarter. Just trying to get -- what's the sort of time frame on the sort of closing that you anticipate on the Infrastructure V, so that's the first question. The second one is in terms of your evergreen funds, is there a mark-to-market impact that you have to put through on those funds or any other funds? I'm just trying to understand, obviously, it doesn't look like there's been any mark-to-market impact. But is there anything -- is it because it's basically flat or do you just not do it on any funds? And then just finally, on the IFS. The -- obviously, you've done the sort of sale where it's transferred into the new fund now, does that trigger a carried interest number into EQT Fund VII and then you take out cost on the sale price into the next fund? Those are the 3 questions.

[Christian Sinding, CEO & Managing Partner]

Thanks. I'll take the first one and the third one. On Infra V, what I said in the presentation earlier that we expect it to be a similar time line as for EQT IX, and if you remember, we launched EQT IX in January and we expect it to be done -- materially completed, as we say, by the end of Q3. So I think that gives you an indication of what we expect for Infra V. So that's probably the way to answer it. We launched it in the beginning of July, a couple of weeks ago. And of course, we -- given that EQT IX has materially -- most of the heavy lifting in EQT IX is done, our efforts are, of course, very focused now on Infra V. When it comes to IFS, EQT VII is not yet in carry mode neither in cash flow terms nor in accounting terms. And the reason for that is that EQT's funds are primarily whole fund carry, so European waterfalls. And that means that we need to actually get -- we need to actually repay the entire fund plus preferred return before the funds start to generate carrying cash. Do you want to do the mark-to-market question, Kim?

[Kim Henriksson, Chief Financial Officer]

Yes. The mark-to-market question, EQT invests as a house, as a company, in all its funds, both in order to have an entitlement to carry, but also that investment creates income in its own right. And that investment that we make as a house is mark-to-market every quarter. So there is an element of mark-to-market income in our P&L. It's on the same line as carried. It's smallish, but you can see from the movements of the valuation share during the first half of the year that it's not going to be material.

[Operator]

Our next question comes from the line of Bruce Hamilton at Morgan Stanley.

[Bruce Allan Hamilton, Equity Analyst]

Maybe just going back to the sort of more industry sort of points around fundraising. I mean, obviously, you made some good points about some of the large guys taking share and so forth. But if I think about when you -- in terms of your recent experiences on fundraising, how much of the growth is sort of increasing allocations from existing [ DV ] sovereign wealth fund investors versus more coming from sort of newer investors by geography, and then finally, kind of newer investor types just in terms of the kind of growth runway for fundraising as you think about it? And then, secondly, in terms of the sort of phasing of some of the newer strategies, EQT Growth and APAC in particular. Can you just remind us how to think about when that might start impacting the P&L more materially? And whether there's been any sort of change in pace due to COVID-19 and how you think about that?

[Christian Sinding, CEO & Managing Partner]

Thank you. On fundraising, it's a broader question actually, what's happening in the fundraising market over the long term for -- in private markets. We believe that given also that interest rates are expected now to be quite low for the long term, the private market space has shown to outperform over more or less all time periods. And there's a real demand and need for yield over the long term, we believe that capital will continue to be allocated to private equity increasingly so over time. The -- so the new sources that are coming are actually from multiple areas. It's from investors that are in -- today that are under-allocated, it's investors today that want to increase their allocation as new investors. And some of those new investors include some of the sovereign wealth funds, et cetera, and some pension funds around the world, but also an increasing part will be coming from private wealth and ultimately also from retail, although that is still relatively early days and most of the retail investment has been done to date or raised from the retail channel to date is for typically a U.S.-centric product like REITs and business development corps, et cetera, that are partially listed entities. There's still not that much actual retail investing into Private Equity because it's still complicated from a regulatory point of view, but that's changing as we speak, and we're -- of course, we're working on that channel. And private wealth is also increasing their allocation. And together those 2, private wealth -- or high net worth individuals plus broader retail savings, the amount of capital in those areas are quite significant and they have very, very little allocation to private equity today. So it's -- I would say it's multifaceted and it's driven ultimately by our ability to drive returns, and that's what we're focusing on in EQT, as you know. That's, at the core, to make sure that we deliver long-term, attractive returns for our investors. When it comes to strategy, the -- I don't think we've actually been that specific on the timing of our new initiatives. But right now, like I said, we are in the preparatory phase of building the teams, sharpening the strategy, et cetera, both for growth and for Asia Pacific. So I would expect us to be continuing to be active and probably launching more concrete funds around that, those 2, sometime during next year.

[Operator]

And our next question comes from the line of Mike Werner at UBS.

[Michael Joseph Werner, Executive Director and Equity Research Analyst]

Most of my questions have been answered. But I guess from a high-level perspective, over the past quarter, we've gotten some guidance from the Department of Labor in the U.S. about the potential expansion of investments into private market assets for the defined contribution retirement sector, particularly 401(k)s. How does EQT think about this? Is this a potential opportunity? And if so, can you give us a little bit of, I guess, guidance from a timing perspective?

[Christian Sinding, CEO & Managing Partner]

Thanks. Like I mentioned in the previous question, it's still relatively early days. The regulation is still being discussed and it depends also very much on the types of products that you're providing and how they're being provided. So we're, as all of our larger peers, we're working on this to make sure we understand it and to figure out exactly which products within EQT would fit this type of investor over the longer term. So we actually have a strategic initiative working on this right now. But it's -- for this call, it's a bit too early to tell -- or to comment on when that type of fundraising will have a material impact on EQT. Personally, I think it's going to take some time. But over the long term, like I just mentioned in the previous question, the amount of capital coming from retail and private wealth channels is very significant and this provides another potential capital growth leg for private markets.

[Operator]

Our next question comes from the line of Gareth Blank at Nordea.

[Jakob Brink, Senior Analyst & Sector Coordinator]

It's Jakob Brink from Nordea, I guess that was me. Just a few questions following up on the EQT VII. Just to make sure, in your slides, you have this saying that you have 3 exits and then it says 4 if you include IFS. How about the MOIC, is that including sort of the actual sales price from EQT VII?

[Kim Henriksson, Chief Financial Officer]

The MOIC is as of 30th of June. Having said that, I mean the sale was fairly well advanced at that point. So we would have known what the valuation is at that point in time.

[Jakob Brink, Senior Analyst & Sector Coordinator]

Okay, fair enough. And then on the credit facility you announced here a few weeks ago or 1 week ago, could you just -- apart from the ESG angle, could you then just elaborate a bit on what's the purpose of this credit facility? And just for my understanding, where exactly and what is it going to be used for?

[Christian Sinding, CEO & Managing Partner]

That's a good question. It's a little bit complicated. It's not at the EQT AB level. This type of financing, called the subscription line, is actually at the fund level. And you could actually call it a revolver for the funds. So each fund at EQT has drawdowns and exits, and in order to manage the cash flows of a fund, you need a revolver to do that. And that revolver result is then used to bridge investments and other things like that. So it's something, which ultimately is included in the performance of each of the Private Equity or private market funds that we manage. And they're quite large because, of course, the funds that we have are quite large and when you do, in short order, we need to be able to fund several billion euros and then we have a credit line in order to fund that. Over time, it's used quite significantly, so it does have a material impact on the ultimate fund performance and typically a positive one because the equity returns are higher than the cost of those facilities. What we've done in this case is that we've linked the terms of that facility to our sustainability goals. So the better we do on sustainability goals, such as diversity and the renewable energy initiatives, et cetera, the better the churn of the facility. And that's what we really like about it. It's something we're going to continue to use because it helps us continue to drive sustainability in everything we do and also which is obviously good for everybody involved. And it also shows that we're willing to put concrete goals and concrete financial elements connected to sustainability. And we think that's important.

[Jakob Brink, Senior Analyst & Sector Coordinator]

Okay. And then just on the Credit divestment, maybe you'll give us more on that in August. But could you tell us something just briefly about the balance sheet impact of this divestment. Is there any apart from the proceeds or...

[Kim Henriksson, Chief Financial Officer]

Yes. I can comment on it. It's marginal, the balance sheet impact. There are no sort of tangible -- no meaningful tangible assets being sort of moved or sold. So it's going to be one line on the balance sheet in August then on each side of the balance sheet, the assets, but it's not material from an overall EQT AB point of view.

[Jakob Brink, Senior Analyst & Sector Coordinator]

And then final question, just coming back to the FTE growth. I think the guidance or the soft guidance you gave in connection with the IPO, so does this hiring freeze or semi-hiring freeze mean that, that correlation doesn't work anymore? Or -- and if not, then why can you change it? I mean why do you need less FTEs than you thought back half a year ago?

[Kim Henriksson, Chief Financial Officer]

Well, let's rephrase that a little bit. I think every company that had to look critically at their hiring plans in March and April of this year and so did we. At the same time, what we are doing is ensuring that we come out stronger at the other end of this. So we -- it's a balance. We need to sort of press the gas button at the same time as we press the brake on the other side. So it's a balancing act.

[Jakob Brink, Senior Analyst & Sector Coordinator]

But basically, I think what you said back half a year ago or more -- back in September, was that the -- was that half FTE growth compared to AUM growth sort of over the long run. Is that then less than 50% now? Or is it -- will you come back to that level when the uncertainty around the pandemic has decreased again?

[Kim Henriksson, Chief Financial Officer]

We -- nobody knows what the new normal will look like after the pandemic, but we are working under the assumption that we will come back to those kinds of levels afterwards.

[Christian Sinding, CEO & Managing Partner]

If I just add one comment there. We're obviously continuing to drive scale in the firm and that means using digital solutions to simplify our business and to become more and more effective over time. And with what's happening now, that's accelerated. But it's like Kim said, it's too early to tell whether that's going to change fundamentally that ratio that we have as our goal. But definitely, we're taking this opportunity to become as efficient as possible and to drive technology into everything that we do operationally.

[Operator]

And as there are no further questions at this time, I'll hand back to our speakers for the closing comments.

[Christian Sinding, CEO & Managing Partner]

Thanks, everyone. Appreciate the excellent questions as always, and hopefully, this was informative for you. We look forward to seeing you again on August 20. And in the meantime, wishing everyone a safe, healthy and good summer. Thanks a lot. Have a great day. Bye-bye.

[Operator]

This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.