EQT AB

STO:EQT

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to the EQT AB Quarterly Announcements October through December 2019. [Operator Instructions] Just to remind you, this conference is being recorded. I'll now hand the floor to our first speaker, Christian Sinding. Please begin.

[Christian Sinding, CEO & Managing Partner]

Good morning, everyone, and welcome to the EQT Q4 announcement. I just want to start with a quick reminder and that's that we publish updates on our investments and our exit activity as well as our AUM development and the valuation of key funds on a quarterly basis. That means that today, we're not presenting our fiscal year financials. They are going to be presented at our meeting on February 12. Today, I'll be presenting in the beginning, and then I'll be handing over to Kim Henriksson, our CFO. Caspar will then round off the call. And we also have Åsa and Pawel from Shareholder Relations today attending. And we'll all be there for the Q&A. So we have a presentation that you should see onscreen, starting with what's Page 2, the highlights for the quarter. The total investments by the EQT funds amounted to EUR 1.9 billion here in the first -- sorry, the last quarter of the year. New investments include SHL Medical in Switzerland and Recover Nordic in Norway. Both of those are in EQT VIII and Private Capital. We also invested in Metlifecare in New Zealand through our EQT Infrastructure IV fund, which is in the Real Assets segment. On the flip side, we had quite a busy exit quarter, which is good, with a total gross fund exits of EUR 2.4 billion. Looking at the full fiscal year, which we believe is more interesting, actually. It's been a year of record activity. Our total investment by the EQT funds ended up at EUR 11.9 billion, up 38% versus last year. And we've also there had very strong, good exit activity for the year with total exit of EUR 8 billion, and that's about 58% up year-over-year. Looking at the overall portfolios. We're pleased to see value creation in our key funds developing according to plan, both in Private Equity and in Infrastructure and actually above plan in Infrastructure III. On the fundraising side, we have been also quite active during 2019. As everybody saw, we announced Ventures II at the hard cap a few months ago. We are continuing with our fundraising of Real Estate that remains with its target of EUR 750 million to EUR 1 billion. And we then ended up at an AUM for the year at EUR 39.9 billion. This is slightly down versus Q3 and it's natural because it's a result of the positive exit activity, which then, of course, reduces the net invested capital. As a firm, we're continuing to grow. We're now over 700 employees, and we're continuing to build the business for the future. As everyone saw, we recently also announced the target fund size for EQT IX. That's the successor fund to our flagship PE fund, EQT VIII. The target size is set to EUR 14.75 billion, and we expect the terms to be materially the same as the EQT VIIIs. And as a reminder, in our industry, there are quite strict marketing rules. That restricts public statements relating to fundraising, and therefore, we can't provide additional detailed comments on our capital-raising activities. But probably there's one question that people will have and that is what is the hard cap of the fund. And we do not set the hard cap until near -- until we get nearer to the first close of the fund. So we won't be able to comment more on that today. Back to deals. Yesterday, we announced quite an interesting and thematic investment in renewables in India. This is in our global infrastructure business, Infrastructure IV. And with that, Infrastructure IV is now 60% to 65% invested. And this is a region where we've had cooperation with Temasek for quite a time. Also, in this context, a comment on the next Infra fund. Here, you should not expect us to be fundraising 2 flagship funds at the same time. So Private Equity and Infra -- or Equity and Infra will not be fundraising simultaneously. I remind everybody that the typical investment pace is about 20% to 25% of a fund per year. However, if this investment pace remains in Infrastructure at the relatively high pace that it's at, we will investigate either solutions to bridge or extend the Infrastructure IV fund. Finally, we have initiated a strategic review of the EQT Credit business segment, and we're going to come back to that in some more details -- with more details later in the call. So we can go to the next page, and I wanted to just take a step back and remind everybody of the purpose of EQT. Our purpose is to future-proof companies and make a positive impact. What we mean by future-proofing is really in everything that we do on the investing side, really investing thematically for the long-term and pursuing attractive, long-term secular trends and then driving positive change in companies through, for example, digitalization. Our company should be better suited for the future when we sell them and when we buy them. On making a positive impact, this is something that we -- has kind of 2 facets. One is that we are -- we do work very hard to transform and improve and develop the companies that we invest in, the assets that we invest in. But it also has a sustainability element, and we're integrating sustainability in everything that we do from deal selection to our value-creation plans and actions. This means since we want to make a positive impact with everything we do, it means also that you should not expect us to have a separate impact fund, but rather that we work to have a positive contribution to society in everything we do. On the next page, also taking a step back. We're operating in a growing industry and we are a growth company, and we're continuing to invest for future growth and we're well positioned for that. We see quite a lot of big opportunities across various investment strategies and geographies. Caspar will come back to that a little bit later. And in order to pursue these opportunities, we do need to continue to scale, digitize and automate our business, and we are making quite a lot of investments and taking actions to make sure that we have a continued strong platform for the future. We work a lot with our people. We're developing the EQT Academy. And obviously, our push for diversity -- of gender diversity is a big part of our agenda now and going forward. We'll also continue with the high level of hirings that we have now, given the opportunity in the market. And we are expanding our geographic footprint. We are opening both a Paris office and our Sydney office here in Q1. Obviously, we want to make sure that we manage our growth widely as we have done also in the past. Then we go to Page 6. This is a bit more detail on our activities. And on 2019, again, a record year of investments, EUR 11.9 billion. A continued, strong investment pace and that is really the 2 axes of the EQT being local with locals and driving thematic investing through our sector teams as our sourcing efforts are really working very well, and our ratio of deal wins is good when we decide that we want to go after something. We're focusing in private equity, primarily on health care, TMT, services and industrial tech. And in addition to infrastructure, we have energy and environmental and transport and logistics. In both of the flagship funds, we have quite a few bilateral and proprietary deals even in this market, which means, again, that our -- the way that we source and find deals is working well. However, the market, of course, is super competitive, very high valuations for assets, lots of competition from all kinds of sources, strategic buyers, IPO and financial buyers. So we're focused on situations where we have clear angles and where we can really add value to the business. So we're looking at buy-and-builds, we're looking at really good companies in strong industries where we can help them accelerate, and given where we are in the cycle, really, for noncyclical businesses. We apply fully our value-creation toolbox to everything that we do. We try to shy away from broad auctions. And on the financing side, we do spend a lot of work with Jim and our team to make sure that we have long-term, robust financing structures that can -- if a storm comes, that can survive a more turbulent time. And in general, we do have plans for all of our companies if a turbulent time would occur. But before I move on, I'd like to mention a couple of deals that I think are quite thematic and interesting. The most recent one, Metlifecare in New Zealand, our first major transaction in Asia Pacific for some time. This is a EUR 1 billion operator of -- and developer, actually, of retirement villages, providing a continuum of care for seniors in New Zealand. It's a social infrastructure deal proactively sourced by our Asia team who are based in Singapore and now shortly in Sydney. This is really leveraging our thematic approach in our health care sector experience as well. On the exit side, we've had quite good activity, like I said, and we've used the relatively good market now to finalize some older funds such as EQT Greater China II, ended up with quite strong returns, and also taking care of and exiting some portfolio companies across the group that haven't performed so well, and those are always more difficult to sell. So we're quite happy with that achievement also. One example of a super, actually, thematic investment and also exit is AutoStore that we sold in the middle of last year. That's our Norwegian robotic warehouse system. We sold it to another player in the industry who will continue on the growth path of the company. During that ownership, AutoStore was transformed into a global logistics automation leader. We quadrupled sales and EBITDA compared to the time of acquisition, and all that growth was purely organic. Actually, margins also went up during that time. So the sourcing of that deal was classically 2 axes, the Norwegian local team visiting the company up in the fjords of Norway, together with the thematic industrial tech team working together, and to the -- those 2 axes actually made us both win the deal and also helped us develop the company. That's actually the fifth best deal in EQT's history in terms of MOC (sic) [ MOIC ] and the best deal that we've done -- the best exit that we've done in the last 10 years. So the reason I mentioned that is that we believe that our approach to the market is working quite well. So that's what I wanted to cover on business investment activities. So with those words, I hand over to Kim.

[Kim Henriksson, Chief Financial Officer]

Thank you, Chris. Thank you. Let me start with a reminder of our business model. I know I've been through this slide before, but it's an important one, that EQT is a performance-driven firm, which means that everything we do start with generating good and consistent returns to our fund investors. And we are convinced that these good fund returns, in turn, will drive our assets under management, which, as a result, will generate income, both management fees and carried interest and investment income to EQT AB. And as before, our cost base is mainly people, employees and other costs driven by the number of employees. So how are we doing on performance? Well, first of all, one quarter is a very short period for our business model. But the thematic investment approach that Chris mentioned, our value-creation toolbox, our focus on digitalization and sustainability is playing out well. So you can see here on the chart that value creation is good. We continue to develop on plan for all our Private Equity and Infra flagship funds and even above plan in one of the Infra funds in Infra III. AUM increased with 9% in 2019, driven primarily by the Infra IV fundraising but also Ventures II and other funds. But we also continue to grow our net invested capital in some of our funds such as EQT VII that has continued to make new add-on investments in the postcommitment period. Some of the gross inflow was offset by exits, as Chris mentioned, which then reduces the net invested capital. So at the end of Q4, AUM stood at EUR 39.9 billion. There were no major movement in AUM in the fourth quarter in that period. During that period, we did close out the Ventures II fund with approximately EUR 620 million in fee-generating AUM, which was offset by exits then reducing the net invested capital base. On the back of the EQT IX announcement last week, we thought it might be relevant to remind everyone also about how the management fee model works. So a few points on Page 10. Firstly, when a fund is raised, management fees are charged as a fixed percentage rate on the committed capital. And as we've mentioned many times, a successor fund is normally starting to invest when 80% to 90% of the predecessor fund is invested. And when that successor fund starts to invest, the predecessor will start charging management fees on the net invested capital. So that is what is called a step-down. There is not a step-down in the management fee rate. And then over time, as the predecessor fund exits companies, the net invested capital then declines. After 8 to 12 years, the fund is typically terminated. Also, a brief reminder of our carried interest recognition on Page 11. The rule of thumb that we have given out -- said is that you should expect a fund to start recognizing carry when you have gross MOIC in the region of 1.7 to 1.8x. And you should usually have made a few exits. This would typically be -- but there is wide variance, typically be 4 to 6 years after the first investment. And you can see here that in Q4, our gross MOIC moved up somewhat in the 2 relevant funds here, which means we are getting close to recognizing carrying EQT VII. However, we reiterate what we've said before that we do not expect carried interest income from -- in 2019 from that fund. And you can ask why not, given the rule of thumb, well, it's exactly because it is a rule of thumb. It's not an exact science. But we are expecting to be in carry recognition mode soon on EQT VII. Moving over to the employee base. We've had continued growth in employees in 2019, adding about 105 net new employees. As mentioned, FTE+ is a good indicator of our overall cost base. And as Chris said, we will continue to scale and digitalize our business and to pursue growth opportunities. So therefore, for this year, 2020, we will continue with our high level of hirings given the current opportunities in the market. But at the same time, we will ensure to manage our growth properly, of course. You should expect most likely more net FTEs in 2020 across geographies and investment strategies and broadly similar growth percentage as in '19. With that, over to you, Caspar.

[Caspar Callerström, Deputy CEO & COO]

Thanks, Kim. As Chris said, we are reviewing the strategic options for our Credit business. And by means of background, Credit has developed well since inception some 10 years ago. It has EUR 3.9 billion in assets under management at year-end, which is roughly 10% of our total AUM and around 6% of our revenues.The growth prospects are good. However, these growth avenues that we see in Credit are in areas that are further away from EQT's core strategy as illustrated on this graph. So when EQT -- we think that we can make a strong impact and fully utilize the EQT platform and our USPs. That's where we see the core of our strategy. And when we are in sort of less influential and more commoditized products, we see our edge is not that strong. And for this reason, we have initiated a review of the future strategic options for Credit. We're still early in this process, and no decision has been taken. However, we have appointed JPMorgan as a financial adviser. In the meanwhile, it's business as usual during the process. And I also think that the decision to review strategic options for Credit should be seen in the context of scaling our business. We believe that all our investment strategies, we should operate them at scale. And this means we will continue to drive the growth initiatives in Ventures with growth, in Public Value, in APAC and in Real Estate. And in the case of Credit, growing this business would be in areas further away from EQT's core, and I must also add, with a bit less in common to the rest of the EQT also on the operations side. And that's sort of the main drivers for doing this strategic review. In terms of timing, we aim to have concluded this review before summer. And also to be clear, all options are on the table, including also a sale. So that was it on the strategic review. Chris, back to you.

[Christian Sinding, CEO & Managing Partner]

Thank you, Caspar. The final page here, a recap of our financial targets and our dividend policy, these remain unchanged. And they are -- the first one, having total revenue growth exceeding the private markets' long-term growth rates. We talk about that over a fund cycle, so for the long term. Profitability. Our target over the long term is an adjusted EBITDA margin of 55% to 65%. And our dividend policy is to generate a steadily increasing annual dividend in absolute euro-denominated terms. And we do expect the Board of Directors to propose a dividend of EUR 200 million in respect of fiscal '19. And what we've announced before is that we expect those to be paid in 2 equal parts here in 2020. So with that presentation, I think we are ready to open up for the Q&A.

[Operator]

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

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

Yes. I've got 2 questions, please. Firstly, on the comments you made about not fundraising 2 flagship funds at the same time. So do you need to have hit your final close on Fund IX to be able to launch Fund V? And you also mentioned that you're looking at options to extend Infrastructure Fund IV. Does that -- is it possible to go to the LPs to say -- just to ask for extra commitments in Fund IV? Is that what you're talking about in effect? And my second question is on the strategic review on private Credit. You've clearly mentioned that it's -- I mean it's not where your focus is, but the outlook is good. I'm just wondering, is the idea that you're trying to get extra bandwidth for management time to focus on the business, does that matter? Or are there any other constraining factors that is limiting you when thinking about the business?

[Christian Sinding, CEO & Managing Partner]

A very good question. Thank you. I'll take the first one and Caspar will take the second one. On the timing, there are some -- there are lots of contingencies here. We are -- any decision will be dependent on our investment pace. What we do know now is that we're starting the fundraising of -- or have started fundraising of EQT IX. And what we also say is that we don't have the capacity and we don't think it's appropriate to try to raise 2 flagship funds simultaneously if that were required if Infrastructure IV continues to invest at this higher pace. Exactly the timing between fundraises is not something that we have yet deliberated, so I won't be able to comment on that. With regards to the solutions that are out there, there are actually quite a few. There is the one you mentioned, which is extending the size of the fund with the current LPs, there's utilizing the secondary market in different ways and there are bridges to the next fund. So there are a number of different alternatives. And if we continue with this investment pace at a higher level, we will dig into which one of those solutions is the most appropriate for the fund, actually, and thus also for EQT. And obviously, we will keep the market informed if we take any major decisions.

[Caspar Callerström, Deputy CEO & COO]

Yes. So addressing your question on Credit, I think I mean let's -- first, we haven't concluded on the strategic review. It's still a review. But I think you're spot on in the sense that the way that we think about this and life in general is, of course, that we need to focus our resources, whether it's management time or it's capital, et cetera, on -- we can't do everything, right? So focusing the resources would be one thing that would be -- we'll look into.And the other thing is reducing complexity in our business. And of course, if we keep adding products that are different, both from an operational perspective as well as from an investing perspective, that adds to complexity to our business.

[Operator]

Our next question comes from the line of Peter Kessiakoff of SEB.

[Peter Kessiakoff, Research Analyst]

Yes. So 3 questions from my side on the strategic review. The first one is, I mean why now? We know that going back to the IPO, it was quite clear that this was a niche segment. But what's happened now compared to some 6 months ago when the IPO process was ongoing for you to make this decision? Then just in terms of a small reminder, are you able to say anything in terms of what the fee model looks like and the fee levels look like in the Credit side? And then just, finally, I mean are there any synergies, really, with Credits and the other strategies and your operating platform? Or is it just -- or is it so that they're close to none and that's pretty much why you're taking this decision?

[Caspar Callerström, Deputy CEO & COO]

I'll think I'll take these questions. So starting with why now, I think -- I mean it's basically we come to a position where we have to make some decisions, both on the Credit side in terms of strategies and in terms of growth perspective as well as the rest of EQT and that sort of puts us in a position where we sort of need to make up our mind what we really want to do. So that's what's triggered this review. And your second question on the fee model. I think we also covered this in the prospectus and the analyst presentation. But I think the fee model for Credit is slightly different than for the rest of the firm. It's typically, the majority of the products are -- or the fees are based on deployed rather than committed capital. So the sort of revenue curve looks different. And then, of course, credit products, in general terms, have a lower management fee level to our AUM, so to speak, which is also then the reason that if you look at our AUM, 10%, and revenue, 6%, now that's -- that is how the math works. And sorry, your last question, synergies on the operating platform. I think there is, of course, some similarities, but credit funds are [Audio Gap]are there, to some extent, but not as synergistic as the other funds are together. On the front end, it also depends a little bit on the product. But what you can say is that the more commoditized products like CLOs, et cetera, there is very limited synergies with the remaining -- the rest of EQT.

[Peter Kessiakoff, Research Analyst]

If I may just shoot a follow-up question on the why now. I mean going back to the IPO, one of the -- I believe one of the areas where you would use your own balance sheet in order to fund the strategies could potentially be CLO, and you mentioned that product in particular. And then now you're coming with a strategic review. Is it so that something has changed in the general pricing environment within the credit strategy that there's pricing pressures and so on, which are, perhaps, making it less attractive?

[Caspar Callerström, Deputy CEO & COO]

No. I don't think there's -- there is nothing that has happened sort of between then and now in that perspective. I think in general terms, I think where you see fee pressure in this industry in general terms would probably be more in credit than in the others. But that hasn't changed from 0.5 year until now. That remains the same. I think we have -- we are using the balance sheet to fund our CLO expansion. So we are doing what we said that we were going to do. But that, again, it puts the finger on is this the way that we should spend our resources in growing CLOs, which is -- it's not a bad business. It's actually a pretty good business, but is it our business? I mean I think that's the big question. So I think very relevant questions from you. And maybe I should add that I think we're also -- we have a very large strategic agenda with a lot of initiatives and activities. And that also puts us a little bit on the spot where we need to make up our mind where we should focus the resources.

[Operator]

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

[Jakob Brink, Senior Analyst & Sector Coordinator]

Just 3 quick questions. The first one is on -- coming back to the business unit, Credit. How many FTEs are employed in that segment roughly?

[Caspar Callerström, Deputy CEO & COO]

Roughly 40.

[Christian Sinding, CEO & Managing Partner]

Yes.

[Jakob Brink, Senior Analyst & Sector Coordinator]

40. Okay. Then this is also partly related to what we talked about before. I think, Christian, you mentioned that you did not have the capacity to do fundraising 2 major funds at one time. Do you maybe consider maybe doing some changes to the way you do fund creation then going forward so that wouldn't happen? Or is this extending Infra IV a good solution or good enough solution? Or how do you look at that?

[Christian Sinding, CEO & Managing Partner]

That's a good question. And we are -- given that we have multiple fund strategies, we're always raising several funds at the same time. The one thing that we think is probably not the right use of resources, it would be to try to raise 2 flagship funds at the same time because of the intensity of the effort and the size of the fundraising and then just the sheer number of employees globally around the world. So that's the decision that we've taken. And we do actually -- yes, your question is right also that the solutions that are out there, we've used them before, even 10 years ago. So those kinds of solutions are relatively straightforward to implement and we think is probably the best way to move this -- if we get into the situation where we would be needing to fundraise at the same time. We're not yet. Those solutions are good, and we're quite confident they will work.

[Jakob Brink, Senior Analyst & Sector Coordinator]

Okay. And then just, finally, just so I understand, how would the terms be? Let's say, you go out and raise new money to Infra IV from not the current LPs, how would the terms be? Just -- I mean is it very -- so I guess there must be some way that this is their money and this is their investment or how would that work?

[Christian Sinding, CEO & Managing Partner]

Yes. Given the -- I mentioned 3 of the solution possibilities earlier in the call. And depending on the timing, the size and which route we go, there are quite a lot of variables there. So I think it's actually too early for me to comment on that at this point in time.

[Operator]

And our next question comes from the line of Patrik Brattelius of ABG.

[Patrik Brattelius, Analyst]

I have a question regarding the number of FTEs. You said that we can expect more FTEs in absolute numbers in 2020 compared to 2019 here. So how is that expected to be divided throughout the year? Is it equally or first or second half? Can you shed some light on that?

[Kim Henriksson, Chief Financial Officer]

Yes. It would typically be so that the second half of the year would have more net hires, just because of the way the finance industry work with bonuses, et cetera. But -- so that would be typically. Do we have an exact plan per month how it's going to look like? Yes. But is it always going to play out exactly like that? No. So that...

[Patrik Brattelius, Analyst]

And how is this connected with your strategic overview within the Credit segment? Are you still going to hire within that segment? Or is that a little bit on hold?

[Kim Henriksson, Chief Financial Officer]

It is business as usual in Credit during the strategic review.

[Patrik Brattelius, Analyst]

Okay. And what about the cost per FTE? Has that changed anything? And will that change anything in 2020 compared to 2019?

[Kim Henriksson, Chief Financial Officer]

We're not going to comment on that at this point in time.

[Operator]

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

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

Just to get back to the fundraising question with regards to Infra V. I believe, given that you closed Infra IV November '18 and EQT VIII in May '18, there might have been a bit of an overlap when you were doing your last round of fundraising for your flagship products. Was there anything specific? A, I guess can you confirm that there was an overlap back then? And then, B, was there any specific lesson that you learned? Any takeaway, any challenges coming from clients that are impacting your decision to ensure that you're not doing overlaps in terms of fundraising this time around?

[Christian Sinding, CEO & Managing Partner]

Actually, there was no overlap. We made the first investment or commitment actually to EQT VIII in May or so, but the fund was actually closed in February, if I remember correctly. It might have been March, but I think it's February. So there was no -- there was actually no overlap in the fundraising at that point in time. But the lessons, so we haven't actually -- we haven't tried to do this. So we haven't -- don't have an explicit lesson learned, but it's rather -- if you can imagine, we have -- in both of those flagship funds, we have more than 100 institutional investors globally. Each of those investors need a lot of time, attention, care, information, visits, et cetera, in order to commit their capital to us for the long term, which they are. And we want -- we really want to respect that. We want to spend the appropriate time with them and therefore structure the fundraise so that it's as positive an experience as it can be even though it's tough for us and it's tough for the clients, actually, these big projects. So it's rather that. It's rather our own internal process and our client service mindset that's driving it.

[Operator]

And our next question comes from the line of Gurjit Kambo of JPMorgan.

[Gurjit Singh Kambo, Head of Diversified Financials Research]

Just 2 questions. Firstly, you obviously had a pickup in the investments that you've made during 2019 versus 2018. Could you just perhaps give us some color in terms of perhaps the size of the investments? And have you seen a pickup in the average size of what you're investing in? That's the first one. And then, secondly, just on the exit environment. Any color on where, I guess, investments are being made, whether it's IPOs, whether it's sort of PE firms or strategic buyers?

[Christian Sinding, CEO & Managing Partner]

Yes. I would say the -- given that we're -- yes, we're growing over time. We're growing our funds in size. We're doing that, of course, not in the same geographic footprint, not always in the same thematic investment area. In other words, we're expanding both geographically and thematically. So there's not a direct correlation between our increasing size and increasing deal size. But we had, in 2019, made some very large transactions, like Zayo, like Galderma. So if you were to look at an average, it would -- there is certainly some more equity capital being put to work, although, as I mentioned before, we've done these kinds of large transactions all the way back from -- since the early 2000s with companies like ISS and Gambro, et cetera. And sorry, what was the second question? Can you remind, yes, thanks. The exit environment, it really depends on the -- what we're trying to do is we try to buy companies that have all 3 exit alternatives possible, so IPO, trade sale and financial sale. And if you look at each of these portfolio, we -- both on the buy side and on the sell side, we do, do somewhat less or fewer secondary sales and purchases than others. So last year, we did a number of strategic sales. We did some financial buyer sales, and we also did some IPOs. And I would expect that also for this year where the exit environment continues to be pretty strong and we have a combination of all those elements this year as well.

[Operator]

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

[Bruce Allan Hamilton, Equity Analyst]

A couple of follow-ups on sort of fundraising on the Credit business. So just to check, given you've already started fundraising EQT IX, where does this become a crunch point for Infra? So i.e., if we were expecting Infra is raised sort of second half 2021, is that kind of doable on the normal fundraising time line? I'm just trying to assess where -- how big did -- a gap you might have to bridge in timing terms. And then, secondly, on the Credit business, I think you said 6% of revenues at the moment come from this. So if we think about -- say you were to completely exit the sort of gap in terms of revenues and profits, would the profits similarly be around kind of 6%? And then linked to that, I guess you've done a really good job with partnerships, Wallenberg, Temasek and so forth. So I know it's very early in the process, but would partnership, perhaps, be the most likely outcome or we should think more clean break on the Credit business?

[Christian Sinding, CEO & Managing Partner]

Okay. I'll take the first one. The -- and I understand why you're trying to ask the question. You're trying to extrapolate when we would actually be fundraising Infra V. And I can't tell you that, obviously, well, first of all, because it depends on us getting to the 80% to 90% of the funds committed, which is something that's going to happen at some point in the future. When that happens, then we'll evaluate the bridging option if we need it. And when we then deploy that additional capital, then we would go into fundraising. So the exact timing is actually -- that's just kind of the logic of how it probably will work. Unless there isn't the overlap and then we could actually go into fundraising directly. So I can't be much more specific. What I can say is that once we formally start fundraising as we did last week with EQT IX, our flagship funds are -- the bulk of the fundraising typically happens in about 6 to 7 months. Not that it necessary closes that quickly, but that's where the bulk of the work is. Gives you a little bit of a feel for the intensity of it.

[Caspar Callerström, Deputy CEO & COO]

And on the Credit side, so remind me, what was your question?

[Bruce Allan Hamilton, Equity Analyst]

Sorry. So I guess, well, twofold. One, and this is probably -- this may be tough. But on the strategic review, I guess if I look at EQT's business model, you've been very strong on building business through partnerships, Temasek, Wallenberg family connections and so forth. So is that the sort of the natural approach one should expect or -- rather than a clean exit was point one. And then secondly, on the sort of, I guess, if we look at our models and think 3 years in the future, the sort of, call it, gap in revenues of, let's say, you're saying 6%, I think, is the current revenue contribution from credit, is it similar to profit? So if we think about how much you would need to make up through other growth, for example, to meet expectations.

[Caspar Callerström, Deputy CEO & COO]

Yes. I think let's start with sort of the possibility of doing some sort of partnership setup. I think, as I've said, I think all options are on the table and that would be one of them as well. And I think -- I mean the honest answer is we have not made up our mind what is the best route forward. We haven't made up our mind to find out. And as soon as we think that we have come to that conclusion, we will let you guys know. But I think -- so that is on the table. Let's see. I think if you look on the margin of our business segments, Credit in the first half was sort of 5% of the sort of EBITDA -- the divisional EBITDA at a 38% margin, so slightly lower margin than we have on the PE side or the real asset side. And that is basically reflecting that it is a slightly different business model with lower fees. I'm not sure if that answers your question, but sort of that's as far as I can go.

[Operator]

And our final question comes from the line of Roberta De-Luca at Goldman Sachs.

[Roberta De-Luca]

The first question is on Credit. You said business as usual. Does that mean you're still expecting to launch a CLO with the proceeds -- primary proceeds from the IPO? Then the second question, still on your strategic review, sorry. At the time of the IPO, I remember you explained to us that the reason for having set up the Credit business in the first place was basically mainly a request from clients to have a diversification within your portfolio. And obviously, that's a trend we've kind of seen throughout the market. So I wonder how you assess basically this issue in your strategic review. And then final question, investments. We've talked, I think, a bit about the size of the investments. But I guess, more specifically, maybe in Q4, we've seen slightly lower investments. Obviously, it's just 1 quarter and there's not much read across probably. But maybe it would be helpful to hear a bit more on the market environment and the trends you've seen and kind of your expectations for this year.

[Caspar Callerström, Deputy CEO & COO]

Okay. I'll start with the sort of Credit question, and then Chris can maybe take the investment piece. But on the Credit -- on the CLO side, we are deploying money from the balance sheet to buy the assets to be able to sort of print the first CLO. So that is work in progress. So as said, we continue with business as usual for Credit until we've sort of taken a decision. And on your remark on sort of the -- our clients' requests, I think that's a very valid point. As we've said, I think the synergies on the back end of our business and on the front end are sort of maybe diminishing a little bit. I mean to find out how our clients think about this is also something that we are doing during this review. There has historically been sort of somewhat of a push from them. And we -- but this market has also evolved. So let's see what we -- where we end up here.

[Christian Sinding, CEO & Managing Partner]

Maybe add to that, that those -- if you look at the CLOs, typically, the -- our clients are not investing in the CLO themselves. So back to Caspar's comment on where the Credit business is moving, it's off a little bit away from our core LP base. So on the market, I wouldn't actually read anything into 1 quarter of deals. Of course, we report it because we're required to, but 1 quarter is a little bit -- is a bit short. And as you've seen, after the quarter, we announced a number of deals. We announced SHL Medical. We announced Metlifecare. We announced the O2 renewables investment in India. And of course, those have been deals that we were working on in Q3 and Q4, but they happen to be finalized here in January. So I think it's better to look on a 12-month basis because then you get some of the seasonality out. And on the 12-month basis, I think the market, as I said in the -- earlier in the call, is still quite good. There is some bifurcation. I would say that for high-quality assets, there's a huge amount of interest and competition, both on the buy-side and on the sell-side. For lower-quality assets and more cyclical assets, it's more difficult. It seems, though, now as the world is expecting the low interest rate environment to continue for quite a long time and the world economy to continue to grow slowly but surely and be a little bit more stable, so it may be that there might -- it may be that some of the more cyclical companies could come back into interest, but that is not what EQT focuses on. That's more from an overall market point of view what we kind of see is happening out there. We're focusing, as I talked about earlier, very much on our thematic investment strategy in our sectors and our geographies. Okay. Was that the final question? Just to see if anyone else added to the list.

[Operator]

Yes. No further questions at this point.

[Christian Sinding, CEO & Managing Partner]

Okay. Very good, then. I thank everybody for your participation. Excellent questions. And we look forward to talking with you in a few weeks when we come with our financial results. Thank you very much. Have a great day.

[Operator]

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