EQT AB

STO:EQT

Earnings Call Analysis

EQT Announces Strong Fundraising and Investment Activity with Promising Growth Prospects

In Q3, EQT launched its flagship Private Capital Asia fund with a target of $12.5 billion, marking a 20% increase from its predecessor. The firm completed €6 billion in investments, while generating €3 billion from exits, contributing to strong overall portfolio performance. Year-to-date, EQT recorded nearly €7 billion in exits, averaging a gross MOIC of 2.5x. Looking ahead, the firm anticipates launching fundraising initiatives totaling around €100 billion to capitalize on emerging opportunities across sectors. Key themes include digitalization, healthcare, and energy transition, aligning with global market demands.

EQT's Robust Performance and Growth Strategy

In the recent earnings call, EQT reported a strong quarter driven by substantial investments and strategic fundraising efforts. The company secured gross inflows of approximately EUR 3 billion and continued a vigorous investment pace, with EUR 6 billion deployed in Q3 alone. The fundraising landscape remains positive, particularly for EQT Private Capital Asia's flagship fund, BPEA IX, which has a target size of $12.5 billion—an increase of 20% from its predecessor fund. EQT's total fee-paying assets under management (AUM) currently stand at EUR 134 billion, reflecting the growing investor confidence in the firm's capabilities.

Investment Strategy and Portfolio Performance

Strategically, EQT is focused on maintaining a diverse portfolio while promoting high-value industries. The company mentioned that their funds performed averagely around 4% on a like-for-like basis during the quarter, showcasing nearly 10% year-to-date growth, suggesting resilience even amid foreign exchange challenges. Additionally, the Infrastructure funds report better performance, with the recent vintages up more than 10% year-to-date. Most of EQT's investments are still in the value creation phase, indicating potential for future upside as they advance towards exits.

Exit Strategies and Market Outlook

EQT remains vigilant regarding exit opportunities, stating that they have actively managed a range of exit processes, which includes public market sales and minority sales of strategic interests. With approximately EUR 7 billion in exits announced year-to-date, the company notes that average gross multiple on invested capital (MOIC) from these exits is 2.5x, reinforcing confidence in their portfolio quality. Notably, the firm is assessing the market environment carefully, balancing the drive for liquidity while optimizing portfolio valuations amid changing conditions.

Guidance on Future Growth

Looking ahead, EQT aims to launch fundraising efforts totaling around EUR 100 billion over the next investment cycle, a significant increase from past fundraising initiatives. This figure is expected to include around EUR 10 to 15 billion from private wealth tailored products, signaling a targeted effort to capture growing market segments. The company is also expanding its private wealth platform, with plans to grow its team significantly by the end of the year, projecting a workforce of around 100 personnel dedicated to private wealth management.

Innovation and Thematic Focus

EQT is enhancing its thematic investment strategy by prioritizing sectors such as digitalization, sustainability, and energy transition. The firm has highlighted the need for substantial capital—estimated at $275 trillion by 2050—to meet global energy transition targets, which provides a lengthy runway for EQT's investment agenda. Furthermore, the company is focusing on innovation through technology and responsible ownership practices, bolstering value creation and competitive advantages in a rapidly evolving market.

Earnings Call Transcript 2024-Q3

[Olof Svensson, executive]

Good morning, everyone, and welcome to the presentation of EQT's Q3 announcement 2024. As always, if you've registered ahead of the call, you should have received an e-mail with your personal pin code to participate in the Q&A.

Next slide, please. Let me start by briefly summarizing the third quarter. In terms of fundraising, we launched EQT Private Capital Asia's flagship fund BPEA IX with a target size of $12.5 billion, a 20% increase compared to the predecessor fund. EQT Infrastructure VI fundraising continued with close to EUR 17 billion, so closed out commitments to date, and we had final close in EQT active core infrastructure at more than $3 billion. In total, we had gross inflows of about EUR 3 billion, including investments by strategies, which charge fees on invested capital.

We kept executing on a strong thematic pipeline and are now EUR 6 billion of investments during the third quarter. We are systematically pursuing various exit avenues, be it full realization, stick sales or capital market sell-downs. Total exit volumes amounted to EUR 3 billion in the quarter. All of the EQT key funds continue to perform on or above plan with healthy like-for-like value creation in the quarter. We strengthened our platform with more than 60 team members in the quarter, primarily within private wealth.

And with that, I'll hand over to Christian to share some more color on our current and long-term priorities. Next slide, please.

[Christian Sinding, executive]

Thanks, Olof, and good morning, everyone. I'll start first with what's top of mind for us here at EQT. First of all, we remain focused on driving exits. Our track record of generating liquidity for clients that we believe is a competitive advantage and we are systematically assessing which asset and which companies to exit, balancing value creation on the long term and liquidity for our clients. Second, we're focused on performance. We see healthy value creation across the portfolio. Going a little deeper, EBITDA growth continues to trend well and is now growing faster than revenues in several sectors like health care, technology, and industrial tech. Our recent focus on driving operational improvements, pricing initiatives and cost efficiencies are delivering results across the portfolio.

However, we do still have a few pockets of underperformance, but there's nothing systematic behind that. We try to continuously challenge ourselves and we have this moniker at EQT that everything can always be improved at all times. And what we're focusing on now are the themes that we want to invest behind, how we drive digitalization, AI and sustainability in our portfolio companies to make them more valuable, the drive towards net zero for all of our businesses. And very importantly, on talent development in and around the executive suite, which has a huge impact on how the companies are developing.

Third, our thematic investment strategy. And in fact, we had record investment volumes over the last 12 months, and we continue to have a really solid investment pipeline ahead across both asset classes and geographies. Fourth, of course, it's fundraising. And as we look ahead over the next cycle, we expect to launch fundraising of around EUR 100 billion in total helping us capture this very large investment opportunity ahead of us. In addition, we're going to be raising capital for co-investments for private IPOs, continuation of vehicles and other solutions, some of which will be fee paying. And in parallel, we, of course, continue to build out our open-ended funds for the private wealth channel.

Now fifth, it's about developing EQT. In the quarter, we strengthened our Private Wealth platform. And in real estate, we're super happy to have appointed Henry Steinberg as the Global Head of Real Estate having been with the firm for more than 15 years. I had a very interesting time when activity is picking up, and we're gearing up for various fundraising to the real estate. This is an exciting transition. Overall, our Motherbrain artificial intelligence team and our digital teams are really trying to push the boundaries, trying to find new ways to drive digitalization across the portfolio and, of course, also internally at EQT.

And to date, with regards to sustainability and net zero, we have supported almost 50 portfolio companies to validate their science-based targets, which is the most of any owner in the world. Separately from this, capital continues to increase and to concentrate with the larger private markets managers. And we're, of course, continuously assessing how to develop our platform whether that's organically or through acquisitions. If it's through acquisitions, of course, track record, strategic fit and cultural fit will be super important criteria -- are super important criteria.

Now in particularly, we're reviewing opportunities within certain investment themes on the one hand and also solutions and secondaries on the other hand. If you look at what's happening in the market, lower exit volumes in recent years have emphasized the importance for clients to be able to balance portfolios and manage liquidity in a better way. We think we can help with that. So secondaries and solutions are going to play a key role in the future in monetization of portfolio companies and for funds and owners going forward. For example, these come to light in creating structures such as private IPOs, evergreen funds running with the winners funds, et cetera. In other words, doubling down on the best companies in the portfolio.

Next slide, please. On the deal side, we've invested a total of EUR 24 billion in the last 12 months, like I said, a record amount. And I think it really demonstrates the strength of our global deal sourcing team, which actually is now one of the largest in the world according to Bain & Company. We're also fairly unique being local with locals in more than 25 countries, but with global sector teams across the world working together. And activity is also now increasing in real estate, as you may have seen. We've generated about EUR 6 billion of co-invests for our clients in the last 12 months with more to come in the fourth quarter. Now with our focus on investing into long-term secular trends and on transforming companies and industries, we see a tremendous investment need for decades to come.

For example, driving digitalization of society, areas within health and well-being and, of course, the energy transition alone. And on that, McKinsey estimates that $275 trillion is needed by 2050 to meet global energy transition targets. And this is as the world decarbonizes and as industries and countries become more and more electrified. So this goes across the energy system itself. It goes across transportation. It goes across manufacturing, you name it. We have an aging population as well across the world. By 2050, 1.6 billion people are forecast to be over the age of 65 and with the world spending about $10 trillion a year on health care, that number will only continue to grow.

And on digitalization, the adoption of AI and more digitalization of society continues to drive a huge need for data centers and related services, benefiting really, not just our infrastructure investment strategy, but also our real estate business. And in the U.S. alone, just to give you a perspective, data center capacity needed by the end of 2040 means that more than $500 billion of investment into that area is needed in infrastructure and real estate. We believe we're pretty well positioned to help drive these themes through active ownership. Early on, for example, we identified data centers as a key in the infrastructure behind digitalization and AI.

Thus, we acquired EdgeConneX back in 2020 and, today, that business is a double-digit billion dollar company and growing rapidly. It's one of the leading providers globally, having more than tripled its data center capacity under our ownership. And like I said, it's continuing to grow strongly. So the trend is clear. Our larger share of value creation and transformation is taking place in private markets. Actually, some recent data from Morgan Stanley showed that almost 90% of U.S. firms with revenues over $100 million are private and today in the world, there are almost 3x as many private equity-backed businesses as public businesses -- sorry, that's in the U.S. today. So 3x as many PE-backed businesses versus public businesses. And we believe these trends will continue in North America, but also across the globe, creating lots of investment opportunities.

Next page, please. Now let's zoom in to one of our top priorities, which is exits. At the start of the year, as the market outlook was improving, we decided to really step up exit preparations to create optionality and really be ready to seize the execution windows that we expected to come. And activity levels have been high. We've had more than 20 exit events this year, and those are continuing. We're also engaging with our clients to innovate, to find new ways to engage owners -- new owners for our companies. And one option, as we've talked about before, is the private IPO, where we're currently evaluating this option actually for one of our larger assets.

Another one is minority stakes. You've seen a number of those this year from EQT and other structures like continuation vehicles that we're also working on, where our clients can continue to own assets with a longer runway for continued value creation. And the third idea is to reinvest in our winners or third concept, really, is to reinvest in the winners and in new fund generations together with our clients and combinations of these. So that's quite exciting, actually, these developments and the liquidity that provides. Now if you look at the overall exit market, the buyer universe is gradually becoming more constructive. Financing markets are strong. IPO markets are open and continue to recover, and confidence is really returning to both financial and strategic buyers.

But of course, as we all know, there is still uncertainty out there in terms of geopolitical questions, security questions, major elections around the world and trends towards deglobalization all of which makes investors more cautious. So we remain balanced in our views. Now during this year, though, activity levels have been high, and I think we've demonstrated the range of exit options that we can deploy, whether it's a full exit in IPO, such as Galderma in Europe, which was the biggest this year in this region, our Waystar in New York. Sell-downs in public companies from -- that we own around the world. Minority sales in assets like EdgeConneX and Reworld.

And at the same time, we're also focused on -- we're also driving exits of companies and assets in older vintages and strategies that we're no longer building or pursuing just to make sure that we manage our portfolio in a very healthy way. And as you know, we have one of the younger portfolios in the industry because of these actions. Now exits in key funds during the last 12 months have been realized at an average gross MOIC of 2.5x, so 2.5x the money on average, which we think is also a healthy signal. Looking ahead, our exit pipeline is active across infrastructure and private equity, and we're going to continue to drive that. However, exit volumes are going to continue to be dependent on market conditions. And you've also seen that it takes time to generate large amounts of liquidity from sell-downs of public companies or from minority stakes. So that's one element.

The other element is that, of course, if market conditions aren't right, we're going to continue to focus on what's in our control, and that's to continue to make the companies more valuable over time through transforming them to become better, stronger, faster and more sustainable over time. So with that, let's go a little deeper into fundraising, and I hand it off to Gustav. Thanks.

[Gustav Segerberg, executive]

Thank you, Chris, and good morning, everyone. We are with BPEA IX entering into the next fundraising cycle for EQT, where we expect to be in the market with some 15 close standard strategies. This includes our 3 flagship strategies where BPEA IX is in the market now and where EQT XI is next, followed by Infra VII. Our expectation is that we will have approximately a 3.5-year cycle before activation of the 3 flagships, which still implies H1 2025 for BPEA IX, which implies early 2026 for EQT XI and midyear 2026 for Infra VII. However, remember that this is only an estimation and it's dependent on deal flow and also that the fundraising will start earlier like for BPEA IX.

Secondly, we're starting to enter into a new era for real estate funds, where the real estate market is coming out of tough years, both from an investment and fundraising perspective. During 2025 and 2026, we're making preparations and execution for the next generation of our logistics and U.S. value-add strategies and our U.S. Core-Plus strategies. In total, the previous generation of these strategies amounted to around USD 10 billion. Thirdly, we're expected to be in the market with a number of our newer strategies where we will be looking to continue to scale up these strategies as discussed in the Capital Markets Day. This includes strategies such as our 2 growth strategies in Europe and Asia; our 2 long-haul strategies across PE and infrastructure as well as our TMT and health care venture strategies.

Lastly, on the close-ended side, we have a couple of new strategies such as the health care growth, which is recently launched and transition infrastructure strategy that we're preparing for. And as you know, we're highly focused on expanding our evergreen offering, which I will come back to in a minute. All in all, as Chris mentioned, this will imply that we will be initiating fundraisings for around EUR 100 billion in this fund cycle. And with that, let's move into the current fundraising progress.

Next slide, please. Infra VI now stands at around EUR 17 billion in fee-generating commitments. And as mentioned previously, we expect active fundraising efforts to materially conclude this year and that the fund is expected to reach its target fund size upon final close in Q1 2025. In August, we launched fundraising for BPEA IX and set a target at USD 12.5 billion. We're still early on in the fundraising. However, reception has been very strong so far, both from existing and prospective clients. BPEA VIII is now 70% to 75% invested.

And as mentioned, we expect BPEA IX to be activated in the first half of 2025. We also held a final close for active Core Infra at EUR 2.9 billion of total fee-generating commitments. And management fees for this fund are charged on invested capital, and it's currently less than half invested. At the end of September, fee paying AUM amounted to EUR 134 billion and where we had around EUR 2 billion of negative FX impacting us in the quarter and around EUR 4 billion of negative FX impacting us in the last 12 months.

Next slide, please. As we've talked about, we're continuing to developing our evergreen offering, both by expanding and building out our existing products, EQT Nexus and EQRT as well as product developing, seeding and aiming to launch 3 new products within the coming 6 to 12 months of which 2 of them are in the U.S., as you might have seen by our recent SEC filings. On the back of this product development, we're strengthening the private wealth platform globally. Over the quarter, we've added around 20 team members related to private wealth, including Peter Aliprantis, as our Head of Private Wealth in the U.S., previously at TPG.

In September, we exceeded 17 FTEs in the private wealth efforts, and we expect to be around 100 people by the end of the year. The quarter also saw a number of new distribution launches for EQT Nexus as well as an exciting launch within the private retirement plans in Sweden for EQT Nexus, which we believe is going to be an interesting global growth vector for private wealth going forward.

And with that, let me hand over to Olof to cover our deal activity in more detail. Next slide, please.

[Olof Svensson, executive]

Thank you very much, Gustav. EQT's investment pace continued at a strong pace, as we mentioned, with about EUR 6 billion of investments in Q3. The activity was broad-based across the global platform and, as Gustav also mentioned, the investment activities within real estate have accelerated. We had about EUR 3 billion of announced realizations in the quarter, a 1/3 of which was in funds that are in carry mode. We were very active in the listed portfolio, selling equity stakes in Galderma, Beijer Ref, and Kodiak Gas Systems (sic) [ Services ] in Q3. And year-to-date, we have executed about 10 public market exit events in the key funds.

We did a full exit of Fiberklaar selling EQT Infrastructure's majority stake to its co-shareholders after founding the company together 3 years ago. Year-to-date, we have done 11 full exits, of which 3 were in the key funds. We also did 2 minority sales during the quarter and just after the quarter ended welcoming strategic investors to EdgeConneX and to Reworld. As we look ahead, we will continue to actively pursue exits, as Christian talked about, but keep in mind that only about 15% of our portfolio has been held for more than 5 years. This compares to some 30%, 35% for the average private markets firm out there. So in other words, the vast majority of our companies and assets are still in value creation mode, and there's still some time before they will be ready for exits.

Let's now turn to Kim to talk more about value creation. Next slide, please.

[Kim Henriksson, executive]

Thanks, Olof, and good morning, everyone. Fund performance for the quarter in our key funds amounted to around 4% on average on a like-for-like basis, taking the year-to-date figure to close to 10%. And this is despite some negative FX effects of around 0.5%. Looking across the portfolio, we see continued healthy earnings growth, as was mentioned, and some recovery in valuation multiples. This development has been consistent across the business lines and there have been no cases or needs to strengthen key fund portfolio company balance sheets in the quarter.

The Infrastructure funds continue to perform well with the more recent vintages being up more than 10% year-to-date on a like-for-like basis. The Asia funds are also seeing strong performance and they are, for example, positively impacted by recently acquired companies performing ahead of their value creation plans. High performing assets in the private capital Europe and North America key funds saw a continued uptick, and we have seen overall positive development in EQT VII and VIII this quarter. Looking at the latest key fund vintages across the platform: EQT X, Infra VI and BPEA VIII, underlying value creation is strong. But remember that when we make new investments, these are added at 1x gross MOIC. So it takes some time before the funds show the underlying returns.

On a general note, also keep in mind that when it comes to carried interest, we apply very prudent valuation buffers with discounts of 30% to 50% to all unrealized values even to the unrealized part of listed holdings. So carried interest will continue to be primarily driven by realization volumes. As mentioned, a large part of our portfolio is still in value creation mode. Year-to-date, we have announced EUR 7 billion of exits. And as a comparison, in 2021, we had EUR 30 billion of exits and recorded around EUR 500 million of carried interest.

Next slide, please. As we mentioned in our H1 update, we signed a number of hires earlier in the year that have now joined EQT. Thus, we added some 60 new FTEs in the quarter and just below 90 persons year-to-date. The year-to-date number is a better reflection of the growth base than the quarterly number, recruitments may be lumpy from time to time. The increase outside of the investment organization relates mainly to our efforts in scaling the private wealth platform, beating capital raising, branding and marketing or fund operations, as Gustav explained. Hirings were also made to further strengthen the institutional channel within capital raising. Medium term, we will continue to selectively strengthen our investment organization, for example, in the U.S. and we will continue to build out our capital raising and central platform to accommodate for our private wealth efforts.

With that, I hand over to Chris for some concluding remarks.

[Christian Sinding, executive]

Thanks, Kim. So overall, we continue to invest at a solid pace, and we continue to provide substantial co-investment opportunities for our clients as well. The portfolios are developing well with fairly healthy value creation across the board as a result of a lot of action from our active ownership philosophy. And we're systematically driving exits. We have a number of exits of companies, which are advanced exit processes, but please remember that a large part of the portfolio is still young and in what we call value creation mode, and we will be patient if market conditions were to deteriorate from today. Overall, we have a quite slid fundraising pipeline ahead of us as a result of our performance to our clients actually and how we're providing investment opportunities to them.

We believe this will help us capture also really great value creation opportunities across secular themes that we talked about in the call today, such as the energy transition, digitalization, health care, et cetera, which is going to require a lot of capital and active ownership for decades to come. We're also actively looking at areas of expansion, such as within new sectors and in solutions in secondaries. We also continue to build out our private wealth offering. You heard from Gustav. This is a long-term growth opportunity for us, and we're building out our teams, building our capabilities, strengthening our brand, et cetera, as we gear up for future growth in that area.

So with that, Olof. Over to you to wrap it up.

[Olof Svensson, executive]

Thank you very much, Chris. So before we go into Q&A, let me just remind you all of our Capital Markets event, which we are hosting in New York next week on October 22, together with the senior EQT leadership team, including our Heads of Private Equity Infrastructure for North America, and Head of Real Estate globally. We will cover a number of topics, including our North American platform.

And Christian, he will share his reflections and we will round off with, what I think will be, a very interesting fireside chat with our founder and Chairperson, Conni Jonsson. It's an in-person event. So if you haven't registered already, please do so by following this orange button in the presentation. And lastly, not to be missed, Times Square will be shining in a beautiful EQT orange on Tuesday.

So with that, we open up for Q&A. Operator, please.

[Operator]

[Operator Instructions] We will now take the first question coming from the line of Ermin Keric from Carnegie.

[Ermin Keric, analyst]

Hope you can hear me. So maybe a few questions from me, if I may. So first off, thanks for the color on the expected launches of new fundraisings. But could you give us any more color on kind of how do you define the next cycle? You talk about that being typically 3.5 years to invest a flagship fund. So should we think about it 3.5 years plus, maybe 1.5 years to raise them. So over 5 years, that would be about 100 billion in? And also, how much of that do you expect kind of private wealth tailored products to account for? So that would be the first question.

Then the second one would be just generally on private wealth. You have been strengthening the team for a while. How do you see the current pace of inflows within private wealth? Has it been according to the plan when you launched, for instance, EQT Nexus, anything you could share there? And then just lastly, to confirm I understood, you're right, Kim, but on the FTE hiring pace, should we see -- so 90 year-to-date is a better pace to look at, so about 120 per annum is a good indicator?

[Christian Sinding, executive]

Thank you, Ermin, for the questions. Gustav will take the first two, and then Kim will continue. There's 3, I guess.

[Gustav Segerberg, executive]

Yes. I think we just need to separate fundraising from activation. So activation, the 3.5 years that we're talking about is related to when we start the new fund from a fee generation point of view. And what I said there is that we expect that to be 3.5 years from when the predecessor fund was started to be activated, i.e., for BPEA IX, as I said, that would be during H1 of 2025. And then it will then roll forward a similar type of 3.5 year date for EQT XI and Infra VII. So that's not directly linked to fundraising. So for instance, for BPEA IX, we started fundraising already now in August, well ahead of the activation. So you should think about those as 2 different things, so to speak. So what we're saying is that we will during -- this fundraising cycle have fundraising with targets amounting to around EUR 100 billion. So I think that's the answer to question one.

Question two, on the private wealth side, once again, there is -- I guess, there's 2 different elements to it. One is the private wealth that we've had within our closed standard products historically, where I think in the Capital Markets Day, we talked about that, that's historically been 10% to 15% of the total fundraising. So that would then imply EUR 10 billion to EUR 15 billion out of the EUR 100 billion. However, what we also said in the Capital Markets Day is that our ambition in the medium term is to go to 15% to 20%. So that would then imply EUR 15 billion to EUR 20 billion. And that would then be a combination of both closed standard products where private banks come directly as well as our own products in the evergreen space, so to speak.

[Kim Henriksson, executive]

And should I go...

[Gustav Segerberg, executive]

Yes. I think -- sorry, also on the pacing and let's say, where we are in the private wealth, I think as we said, right now we're very much in a product development phase. So of course, where we are is that we have one product where we are in the market where we have 1 product where we're just entering the market with EQRT on the real estate side, and we have 3 products which are in product development. So if you think about that, of course, from a, let's say, monthly inflow perspective, we, of course, are now where we want to be as you think about 1 product versus 5 and that 1 product is still, let's say, not fully up to scale in terms of being in all the countries, being on all the distributors that we want to be on. And that's why we're also trying to communicate that this is a long-term game in this, and it will take some time before it has a meaningful impact on equity.

[Kim Henriksson, executive]

Thanks, Gustav. On the FTE side, I could just answer a simple yes to your question, but I can also give you a bit more color around it, where -- what I said is that the recruiting pace is a bit lumpy. These are net hirings by the way. So sometimes you have people leaving the firm as well. And the 60 persons that we had in this quarter is not reflective of a sort of an annual rate and then dividing the -- using the LTM rate is a better reflection of the annual rate. Whether it will be exactly 120 this year or not, I don't know.

It depends on how the recruiting that are in the pipeline go. It depends on whether people are leaving the firm, et cetera, and whether they start on this side of the year-end or on the next side, it doesn't really matter from a financial point of view anymore this year as -- but of course, it will have a full year effect next year. But that's a little bit color around it. It's not an exact number, you should plug in.

[Gustav Segerberg, executive]

Sorry, maybe just to clarify, so on the reference to 5 years, I think when we're talking about the fundraising cycle, we're thinking about that in a 3-year perspective. So in this instance, it will be '25, '26, '27, just so that's clear as well.

[Operator]

Next question is from the line of Magnus Andersson from ABG SC.

[Magnus Andersson, analyst]

I was just wondering on BPEA IX where the target size -- target fund size you announced was, it was a slightly lower increase on the predecessor than we are used to in your traditional PE flagship strategy and Infra. Why that is the case? What's the difference is there in BPEA versus your other strategies? And if we should expect that also going forward, i.e., that the increases between generations will be -- could be a bit slower. That's the first one.

Secondly, I think, you have talked about before that something is happening to the fee structure in the predecessor, in this case, BPEA VIII, once BPEA IX is activated, whether I'm correct there? And how that could impact the overall fee level? And thirdly, just to confirm, Gustav, if I heard you correctly on these activations just on EQT XI, you now said early '26 instead of the previous H2 '25, not that it matters that much, but just to be clear there.

[Christian Sinding, executive]

Thanks for good questions. Well, when it comes to the fundraising target setting, that is -- it's both an art and a science, I guess, you could say. And we have these 2 important decisions when we go into a new fundraise. One is what's the target for fundraise. And the other one is, what's the hard cap. And as you know, the fundraising market has been quite challenging since the boom times of '20 and '21. So I think you can see the target setting in BPEA IX as reflective of wanting to be respectful of that situation. Now our Asian business is performing very, very well, as you know, lots of investment opportunities. We're about 75% invested, 70% to 75%. Deal flow is strong. Performance is good. So hopefully, that will help create momentum in the fundraise. And at the appropriate time, together with our clients, this is a discussion with our clients, we'll set the hard cap.

And that's how it works for every fund. And then when you -- the other reflection maybe when you're asking about the other key funds, as funds grow over 20 billion, then are kind of in a slightly different category. There aren't that many funds of that size in the world. The biggest one, I think, is about 26 right now. We're about 22 or 22.5 and the growth of the sizes of those particular funds if they were to be exactly the same, the future will hold the answer to that. But this is really something that we focus a lot on together with our clients, what's the right size of the fund for the investable set that we have. So we'll get into a lot more about that as fundraisings are launched and as we set hard cap so we can continue the dialogue from there.

[Kim Henriksson, executive]

And if I may comment on the fee. On the fee structure, typically, as you know, Magnus and others, the way the fee structure works is that it's on committed capital in the active fund and then there is a step down and the fee percentage is calculated based on the invested capital thereafter. So at no point on market value really in our traditional closed-end funds. In most cases, that percentage is the same even after the step down. In some cases, including BPEA VIII it is a slightly lower percentage after the step down.

[Gustav Segerberg, executive]

And just to confirm on the last question, you're correct. So the -- our latest estimate is an early 2026 activation for EQT XI. Of course, as we talked about previously, this is an estimation and will, of course, depend on when and how we see the deal flow develop, and you should also expect that fundraising for EQT XI will start before that.

[Operator]

We will now take the next question from the line of Arnaud Giblat from BNP Paribas Exane.

[Arnaud Giblat, analyst]

I'd like to rebound on the comments you made earlier saying that you're looking at secondaries and solutions as an interesting areas. Particularly, I'm thinking around private wealth. It seems like having an LP secondary capability should be quite helpful in terms of better managing liquidity for clients. So I'm just wondering if it's in that context, you're thinking about it? My second question is, I just want to double check on valuations. You said even after IPOs, you're still holding assets at a 30% to 50% discount. Is that also the case for Galderma where you've liquidated part of your position?

And finally, assuming that we go into a more normalized cash flow for LPs. So more exits, exits matching investments or the other way around. So cash coming back to LPs. Do you think that we could go back in towards a quicker fundraising cycle? Not quicker in terms of the activation, but back to the older days where you used to be able to fully start raising and finish raising within 1 year, 1.5 years?

[Christian Sinding, executive]

Thanks, Arnaud. When it comes to secondaries and solutions, I think, if you look at the capabilities of EQT and some of the things I mentioned on the call with regards to minority stake sales, private IPOs, continuation vehicles, evergreen structures in private wealth, certain managed accounts and all those elements. Over time, also probably some evergreen structures in some funds, we have that already in our real estate business, for example. The initial focus for us will be around those types of solutions on a fund level or on a company level and how that connects to creating liquidity for our investors really in various forms on the one hand. And on the other hand, how do we double down and invest more behind either sectors or themed or companies that we want to put more capital behind in a smart way.

Then whether we will, over time, look at the LP side, that may be, but that's a little bit further away from the capabilities that we have. And we want to be supportive of other owners of assets of ourselves as owners of assets and think about solutions in those areas. And we want to continue to try to innovate. And hopefully, we have talked about before if you think about the way that the market is today, there are a lot of single asset types of solutions. We're hopefully going to one point get to multiple asset solutions or either solutions for other GPs, et cetera, where we can find either portfolios or companies that we can double down on and either help create value and/or liquidity with our capabilities. So that's how we're thinking about it.

And then with regards to the fundraising cycle, it's also a really interesting question. It's a little too early to tell. But the intensity that we're seeing now of fundraising in BPEA IX is at least quite healthy. So as the market starts to rebalance, we're now in maybe the third year. We are in kind of a third year of slower fundraising. As exits start to come out, as liquidity is driven through the primary markets and secondary markets, we do expect the fundraising market to get healthier and faster. And I think it's in everybody's interest, both clients and ourselves to have faster fundraisings. So let's say, I hope so. There are some early signs, but it's a little too early to tell.

[Kim Henriksson, executive]

And on valuation and valuation discounts, we need to separate between the valuations we have in our books for these assets and companies and what we use to calculate the accounting carry. When -- for our books and the valuations of these funds, we try our best to mark everything to market, either with multiple based or DCF valuations or if it's a listed company, we believe that the listed price, the market value of such company would typically be the best mark-to-market value. So that's sort of the valuation mark. Then in order to calculate how much carry would this lead to, we apply a 30% to 50% discount on those numbers, and that number would then also apply to the listed companies. So in your example, to Galderma. So on our books, Galderma, as mark-to-market, with its market value in our carry calculation, there is a 30% to 50% discount to it.

[Operator]

We will now take the next question from the line of Jacob Hesslevik from SEB.

[Jacob Hesslevik, analyst]

So I have 2 on exits. The first one is that we have read reporting comments from banks and media that there are still some deals that could happen before the end of this year. Is this something you're looking at? Or do you think we need to wait until 2025 before rate has come down sufficiently to improve market conditions and investor confidence?

And then second is a bit more thematic. So historically, less than 20% of EQT's divestment has been through an IPO. But given that the funds are becoming bigger and bigger, which should result in EQT will acquire larger companies in the future, I guess, few and fewer strategic or financial buyers are able to finance such deals. So should we then hence expect the share of IPOs to increase in the next some cycle? Or how should we think about the exit mix going forward?

[Olof Svensson, executive]

I can take the one on the exit outlook. I think as Christian talked about and as I mentioned, we do have various processes that are ongoing. I don't rule out that some of those could be completed this side of the year. Let's see, it depends on the specific processes and, as Christian also mentioned, we will monitor and watch market conditions carefully. And if conditions are not right, we will be patient with our assets. So time will tell. Then when it comes to the mix of exits, I think you have a point in the sense that if you have larger assets, the IPO market might be a relevant route, but probably more from the perspective that we see the trends in the public markets being such that they are more accommodative to larger assets.

I mean liquidity has a real value in the public markets, perhaps more so than ever. And therefore, we think, especially in Europe, that larger assets and super quality assets like a Galderma, they fit very well in the public markets. Then I wouldn't necessarily conclude that larger assets need to go to the public market route. As we gave a few examples here, and as Christian also talked about, there are a broad number ways that we could exit companies. And one of the themes that we talked about is, for example, the situations where we have clients who actually want to find a way of continuing to own our companies. We talked about a few examples of minority sales that we have done.

And in some situations, you could also see companies that are gradually transferring ownership to new owners, be it our clients or other forms of owners that want to own these assets over the long term. If you eventually have a sufficiently broad owner base in those, maybe they end up being a listed asset at one point in time, but the public market route may not necessarily be the one you need to go to immediately. Lastly, I'd say we do also have typically various exit routes that are applying to our companies. It's never so that 1 company can only have 1 exit route. If you have thematic companies, high-quality companies, there are typically several different types of buyer universes for those.

[Operator]

We will now take the next question from the line of Hubert Lam from Bank of America.

[Hubert Lam, analyst]

I got 3 of them. Firstly, again, going back to what you talked about around solutions and secondaries. Are these mainly organic opportunities or we look at M&A, particularly around if you wanted to add on to secondaries? Second question is, maybe if you could elaborate a little bit more around the market environment and sentiment. Obviously, lower rates should be positive, but you also mentioned geopolitical risk. How much time do you think it would take before we see more of a meaningful recovery?

Would it be more early next year before we see things take off? Just wanted your sense on that. And lastly, on shares. For this year, you have 145 million shares that have just come unlocked. Are you planning on like gathering interest from those that want to sell and possibly selling it all in one block? Or are you -- or are people just mainly going to be individually selling them in the market themselves? Just wondering how you think about this process.

[Gustav Segerberg, executive]

Sure. Maybe I can start off on the solutions and secondaries side. I would say that we're -- as always, when it comes to these situations, we look at it both from an organic and M&A perspective, where do we think the best outcome for us would be? Do we have the right capabilities internally to develop this or do we think that there is, let's say, a partner that we can partner up with. So I would -- similar to many of the other situations that we have, we'll look at it from both perspectives. .

[Christian Sinding, executive]

Good. Kim, do you want to take the last one?

[Kim Henriksson, executive]

Olof, on the...

[Olof Svensson, executive]

Yes, very happy to. Yes, I think there were 2 more questions. One was...

[Christian Sinding, executive]

You take both of them. I'd make it easy.

[Olof Svensson, executive]

Okay. Okay. Hubert, I think one of your questions was on the rate environment and whether we need to come to a certain point before exit activity picks up more broadly. I think we've commented about that. I don't think the environment is the only factor here, it adds probably to confidence generally across the bio universe. But there are more factors that play into this. But I think we can confirm that we have seen certainly a gradual improvement in the exit environment throughout the year. Whether that holds, time will tell. Then on your third question around ownership of EQT. You're right, we had about 145 million shares, where lockup contracts expired in the third quarter. And to put it into perspective, as you know, we have annual lockup expiries. We designed a lockup at the time of the IPO and in 2021, that extends almost 9 years post the IPO.

And this previous lockup that was a year ago, if we look at those shares, about half of those were sold over the last 12 months. So a lockup expiry doesn't mean necessarily that shares are for sale. I think that's important to keep in mind. Secondly, on the execution we -- these shares are held by over 100 different individuals and the ownership for each individual is a decision that, that person makes. It's not a EQT decision, clearly. And if you look again over the past year, you have seen individuals do sell some shares. As you know, we have very, very significant commitments that are made into the EQT funds.

And for some, it's been a way to fund liquidity for continued fund investments, and there would be other reasons, of course, also for people to diversify their balance sheet, so to speak. The executions of those have either been when our shareholders and new shareholders have reached out with an interest to increase their ownership in EQT or individuals have executed their share sales in the market. And I think as a base case, we think it's a decision that should be with the individuals, and it's certainly not a decision that is with EQT. So hopefully, that gives you some context to it.

[Operator]

We will now take the next question from the line of Nicholas Herman from Citi.

[Nicholas Herman, analyst]

Yes. Three for me, please. One on exits, one on evergreen, and one on, I guess, you call it process. So just on exits, when you're thinking about the mix of exits, I guess, absent some marked recovery in public markets, what percentage of exits do you think could come from the other routes you kind of mentioned, so private IPOs, minority stakes, continuation vehicles? CVs was certainly one area you called out at the CMD. Could you give an indication of how many assets you consider suitable in your portfolio for this structure? And can we see you create a CV in the next 6, 12 months? That's the first one.

Secondly, on evergreens. Sorry if I missed this, but could you provide some more detail about the new product that you'll be launching both for private wealth and, I guess, how they will be differing to your existing products? And I guess a broader question here is semiliquid seems to make a lot of sense of private wealth. Do you think it has a place in the portfolios for LPs or institutional investors, too? And what are LPs telling you about portfolio construction going forward between semiliquids and closed-end products.

And then finally, just on the process or competitive interest question. Just curious, from an exit perspective, in a situation where you have 2 or 3 funds invested in an asset, in a minority stake sale, what is the process of determining, which funds and LPs get their capital back? And I guess a similar related question in terms of process, for Nexus, and I guess this may be a question for Gustav. And sorry if this is a basic question, but just what is the process for allocating portfolio investments between the funds and Nexus?

[Christian Sinding, executive]

Thanks a lot. Lots of questions there to unpack. I think we'll try to keep the first one snappy. We are creating the capabilities or have created the capabilities and we'll continue to strengthen those across all the exit processes, whether it's a full sale, a partial sale, IPOs, other solutions to either running with the winners or solving a portfolio, question or a challenge or attacking a sector or something like that and these private IPOs, continuation vehicles, et cetera. It's very difficult to actually give an estimate of the exact percentage between these because each company has its peculiarity. So one company might do a private IPO. We're actively working on one as we speak. Another company might do a continuation vehicle.

Also they're actively working on one or several. And -- but they also might become minority sales or they might go public. What we try to do is to run multiple processes around each company and make sure that we maximize the long-term value creation in the fund together with balancing liquidity. So as you can imagine, there are many dimensions here on a fund-by-fund and company-by-company level that we work with. So I think the more important thing is that we either have built or building or are continuing to strengthen all the capabilities to deliver liquidity in all the different ways that exist in the private markets. And then maybe with that, I give the word to Gustav to answer the rest.

[Gustav Segerberg, executive]

Yes. So maybe starting off on the evergreen side, so what -- so we're going from 2 products to 5 products. Today, we have a private equity product for, let's say, focused for selling in Europe and Asia. And we have a real estate product focused for selling mainly in the U.S., but could be sold globally, so to speak. So the 3 products that we are product developing is an Infrastructure product, for -- to be sold in Europe and Asia as well as 2 products for the U.S. market, 1 for private equity and 1 for infrastructure. So that gives us the multiple or the 5 different products.

And then on the other question related to evergreen, from an institutional perspective, I would say that there is a fairly significant smaller institutional segment where the evergreen products for sure are relevant, where we're seeing interest and we're having a lot of dialogue. And it's really from 2 perspectives, either from -- and as small institutional clients starting their private markets journey, i.e., they don't have a program up and running. And hence, this is a quicker way to get direct exposure as they don't need to build a program from scratch, so to speak, but also some institutional clients using it more from a liquidity point of view where they go up and down in terms of exposure on the evergreen side.

And then on the third one and, I would say, from an exit perspective, the way that it works from a multiple fund perspective and the same way that it will work or that it works from a Nexus perspective is that you have a conflict of interest perspectives, you have different investment committees taking the decision on staying invested or being invested, so to speak. So it's really, let's say, thinking about it as it is let's say, different investors taking decisions on whether to be invested or not.

[Operator]

We will now take the next question from the line of Angeliki Bairaktari from JPMorgan.

[Angeliki Bairaktari, analyst]

First of all, if I may just follow up on the exits. I've heard your comments during the call and they do sound somewhat cautious to me, especially with regards to the market conditions improving, but still some uncertainty, et cetera. So if I look at consensus expectations on Bloomberg, I mean, consensus for next year 2025 stands at a little bit less than EUR 700 million. So can you know sort of -- should we interpret your comments today as that number sort of being unrealistic in your opinion based on where we stand today? Obviously, things could change, but if market conditions remain as they are today and kind of like there is an outlook for a slight improvement, do you think that this EUR 700 million, that consensus expects for next year, is unrealistic or not?

And secondly, with regards to Infrastructure IV, I mean, this fund now has a gross MOIC of 1.8x. Should we expect that carry is going to start coming through in accounting terms already from 2025? And if yes, is there typically an initial sort of bump in terms of the carry recognition when fund starts sort of switches on in terms of accounting carry. And just a last clarification please on BPEA VIII post commitment, can you let us know the rate -- the post commitment rate? If I remember correctly, the current sort of management fee rate in that fund is around 1.7%. So can you let us know how much lower the rate is going to be after the -- when it enters the investment period?

[Kim Henriksson, executive]

Maybe I'll take -- I'll start, then fill in the team as required. I mean as you know, Angeliki, we do not -- we do not comment on where we are in relation to any expectations out there. I think we have been very forthcoming on our exit expectations in terms of Chris mentioning the multiple different exit routes that we are working on, the multiple different exit projects we are working on. And I think it's just prudent to be clear that there are external factors out there that may or may not be impacting that. But we are very confident about the quality of our portfolio, the quality of our exits and the quality of our preparation. So I don't think we're going to give you more than that in relation to the number. .

In terms of the bump when carry becomes -- materializes from an accounting perspective, it would usually materialize not from a slight uptick in valuation, but from the -- an exit or several taking place, in which case, yes, when you sort of cross that bridge, then there would typically be a little bit more carry, but I'm not saying that Infra IV would necessarily reach carry mode in '25. But yes, there is a bump. And thirdly, what was the third question. It was on -- oh, BPEA. Yes, it's in the 10s of bps, not sort of half or something like that.

[Operator]

We will now take the next question from the line of Haley Tam from UBS.

[Haley Tam, analyst]

I have 3, please. One on fundraising, one on value creation and one on co-investment. On fundraising, thank you for the color on the EUR 100 billion ambition. Would it be correct for us to interpret that as around half coming from the 3 flagships: EQT, BPEA and Infra. In which case, could you maybe give us some guide on how you think the rest might be split between newer funds and real estate? And also just to clarify for me, does this EUR 100 billion figure include anything from some of the liquidity solutions you've mentioned, for example, continuation funds or secondaries.

Second, in terms of value creation, 10% year-to-date. Could I understand that, I hear what you say about the onetime MOIC when new investments being added to the more recent funds. But I noticed that the MOIC for EQT VII, EQT VIII is either flat or down year-to-date. So should I be thinking your value creation is mostly happening in newer funds, not older ones? Or is it more infrastructure focused? And then the final question is just on the EUR 6 billion of co-invest year-to-date and the plans to do more. Could you comment on the aggregate fee structure for those relationships?

[Gustav Segerberg, executive]

Should I go on one.

[Christian Sinding, executive]

Yes, go for it.

[Gustav Segerberg, executive]

So I would say it like this. So if you think about -- the previous generation of flagships, i.e., EQT X and Infra VI and BPEA VIII, those are in the region of EUR 50 billion. So of course, our ambition is probably that the next generation of that, i.e., BPEA IX, EQT XI and Infra VII, in that context, is a bit bigger than your mention 50, so to speak, just to clarify that. I would say, just so you have the context, the previous generation connected to this EUR 100 billion was around EUR 75 billion. So that's, let's say, the move that we're talking about here, which then includes the next generation of existing funds as well as a couple of newer initiatives. So for instance, health care growth and energy transition is included in that mindset of the number, so to speak. But not other new products, so to speak. And that, of course, then means that secondaries are not included in that number.

[Kim Henriksson, executive]

And on the value creation, I'd say that the gross MOIC is not a very exact number to look at the value creation sort of like-for-like over a shorter time period. As if you have a fund, for example, where there's already been significant realizations even if the remaining assets have a good value performance, it doesn't really move the needle for that. So that's sort of one observation on your questions there, which needs to be taken into account in the math. But like I said before, I would also say that Infra has had a very good performance in the year and more than the 10% that year-to-date performance, as we mentioned.

And I'd secondly say that also some of the more recent funds have had very good performance and then sort of the actual MOIC is dragged down by the 1x that we apply on any new investment. So maybe that provides you with a little bit of color. What was the question on co-invest?

[Christian Sinding, executive]

Yes.

[Gustav Segerberg, executive]

The EUR 6 billion of co-invest. I don't know, Chris, if you want to take that or if I should.

[Christian Sinding, executive]

On the fee structures, go ahead.

[Gustav Segerberg, executive]

Yes. So I would say that the normal structure is that, that is, let's say, without or with very low fee.

[Christian Sinding, executive]

And maybe just to add to that, all the other surrounding solutions that we're trying to provide through these other private IPOs, CVs, et cetera, et cetera, those are fee paying in some form. And so of course are the evergreen funds. So it's a combination of elements around co-invest and the other opportunities that we're providing to our investors.

[Operator]

We will now take the next question from the line of Nicholas Herman from Citi.

[Nicholas Herman, analyst]

Okay. So just a very quick follow-up here on Haley's question. Just to avoidance of doubt, is co-investments included in the EUR 100 billion. I assume not, but just to be clear.

[Christian Sinding, executive]

No.

[Operator]

There are no further questions at this time. I would like to hand back over to management for closing remarks.

[Christian Sinding, executive]

Thanks, everyone, for paying attention this morning and for your engagement with EQT. I think we've covered a lot of ground in the materials and in the Q&A. We look forward to seeing many of you at the Capital Markets Day and thanks again. Have a great day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.