EQT：规模化回报 - [Business Breakdowns，第220期]

This is Matt Reustle, and we are going back into the world of alts today with a breakdown of EQT. Right off the top, I need to mention our guest today, Sean Barrett. He couldn't have been more perfect for this breakdown. You will hear that Sean has been investing in alts since Blackstone christened this asset class just over a decade ago.

He is the founder of Counter Global, and alts investing is ingrained in Counter's DNA. We cover the massive yet lesser-known EQT, touching on the Wallenberg family ties and how this business has continued to generate returns at scale. But beyond the EQT conversation, you're going to get a master class on alts investing throughout this conversation. I got into some of the nitty-gritty details that I'd be curious about, and I think any investor would be curious about, when it comes to looking at these names. I could tell you a million more reasons why I enjoyed this one, but let's just get on to the episode.

All right, Sean, I am excited to have you here to talk about EQT. For this conversation, we were going back and forth before the episode, and I actually thought the best place to start for the audience was to share a bit about your own background in the space of asset managers and alternative asset managers. I think you bring some history in terms of looking at these names, so maybe you could just start there, and we can take the conversation toward EQT after we set that in place.

Thanks so much for having me. I love the show. I listen to a lot of your episodes, and it's great to be here. I've been studying and following the alts space for close to 15 years now. The history really goes back to 2011 or 2012, when I started studying Blackstone, and back then it was a very complicated space, relatively speaking.

I think there are still some complexities about the space that make it quite interesting and allow investors to be differentiated. But if you go back to 2012, a lot of the alternative asset managers—pretty much all the alternative asset managers that were public—were publicly traded partnerships, or PTPs, and that created a lot of complexity. It meant investors would get K-1s. There was actually a question if you invested in Blackstone, for example, you might end up with a K-1 in every state where Blackstone operates. So imagine someone making a $100,000 investment in Blackstone and having 50 K-1s.

Adding to that complexity was the accounting treatment, and that still continues today. A lot of these alts are required to consolidate their underlying funds globally. What you end up with is just this mess of accounting if you don't know what to look for. But that's what makes it interesting as well, and allows you to have some differentiation and have a view on the business that might be different from others.

Over the years, I ended up studying these alts in a way that I thought was unique and allowed me to predict the businesses with a little more clarity than what I was seeing from the analyst community. That really started with building up these businesses on a fund level. All of these alts manage anywhere from 20 to 50 to 100 funds, depending on the alt, that are meaningful funds for them. I had this thought that if you could actually go down and understand each fund, then you would be able to understand the 2 earnings streams better than most.

They earn management fees and carry. If you understood what the funds were doing, you could figure out whether they were likely to raise a bigger fund in the future. Obviously, if you could understand the investments in each fund, you could understand when and how much carry they were going to generate. So, all very interesting stuff. That's still how I think about the space today, and I'm excited to go deeper.

I'm just picturing a lot of tabs in an Excel model, depending on which alt manager you're looking at. But in many ways, we've come a long way since those early days of partnerships and the questions over 50 K-1s. We'll bring EQT into the conversation. You referenced some other names in that first answer, like Blackstone. EQT doesn't get the same type of press coverage that the others do, but there are some obvious reasons why, perhaps, and some less obvious reasons. How would you describe EQT at a high level for those who aren't as familiar with the name?

EQT is a thematic private markets investment manager. They're based in Stockholm, but they operate globally. By thematic, I mean they invest behind large secular growth trends, such as digitization, AI infrastructure, health care for aging populations, and e-commerce warehousing.

EQT manages about €270 billion of AUM on a market basis and about €140 billion of fee-paying AUM. The business can be broken down into 4 strategies. They have a private equity business that focuses on Europe and the Americas. That's about 35% of fee-paying AUM. Private equity in Asia is about 20%, so together, private equity is about 55% of the business. Infrastructure is about 30% of fee-paying AUM, and real estate is about 15% of fee-paying AUM.

Historically, and this is important for the thesis and the story, EQT's funds have been top-quartile performers across strategies, generating 2.5x gross MOICs for their investors in those funds and roughly 20% net IRRs for their investors across those funds. We can get into the differences later, but I think the whole space should be grateful that Blackstone went first and created this wonderful playbook. Now, firms like EQT and others get to follow that playbook and grow their businesses substantially over the next handful of years.

Standing on the shoulders of giants, even if you become a giant yourself over time, every alt manager seems to have this incredible backstory, typically with larger-than-life characters. You mentioned Stockholm origins here. What is the backstory to EQT? If you can get into some of the major stepping stones along the way, however you would describe the various chapters, because they all seem to start with these small beginnings before they get to what we know them as today, what does that look like for EQT?

Absolutely. To understand EQT, you really need to understand EQT's heritage, which was driven by the Wallenberg family. The Wallenberg family was responsible for the founding of SEB in the 1850s. SEB is the largest bank in Sweden today and was instrumental in the country's growth over the last 150 years.

Early on, SEB, the bank, took ownership stakes in companies during downturns. They would lend to these companies, and they would end up with shares, which led to the creation of Investor AB in 1916 as a dedicated holding company. The Wallenbergs became investors in a bunch of Swedish industrial giants over the years.

Then, in the early 1990s, Conni Jonsson, now the chairman of EQT, then in his 30s and a vice president, pitched the idea of a Wallenberg-backed private equity firm. Investor AB gave Jonsson the mandate to create EQT in 1994. That was a big moment. The launch was backed by the Wallenbergs, but it was also backed by the Rockefellers and the Mellons. Conni's vision was really to marry Wallenberg corporate governance practices, values, and industrial expertise with the active ownership that EQT is known for today.

The Wallenberg ethos is a name that I keep seeing as I research different things, particularly abroad. What goes into that?

The Wallenberg family is really legendary. They've been a huge part of Swedish culture and financial development over the last 100 or 200 years, but their values are incredible. I think when it comes to their values, it's different from a lot of the private equity world. Frankly, they say, "Do business the right way. Doing good is simply good business." They say things like, "Make friends, not enemies."

If you actually go to EQT offices and meet people who work there, they're kind, transparent, authentic, and informal. These are the kinds of things that the Wallenbergs wanted to see.

Those were the values they lived by. And it's really played out in this culture that embodies the old values of the Wallenbergs. From a more tangible perspective, it actually results in really high employee retention, which is rare in the finance space.

I think the attrition rate at EQT is something like 10% as far as employee attrition per year, and regrettable attrition, we think, is 1% or 2%. That compares very, very well to the private equity world, and a lot of that comes from these values from the Wallenbergs that make EQT such a great place to work and a great place to be an investor.

So they got this incredible foundation or backing, but you obviously can learn a playbook. It doesn't mean you can execute a playbook. What did the execution look like over the next 25-plus years that led them on this path to where they are?

There were a few really important milestones, I would say, or inflection points. So in 1994, they launched the first fund, which was about €100 million. It was focused on Nordic industrial companies and tech companies. But the idea was to take these companies and future-proof them—find businesses in growing sectors, future-proof them, and make them better.

So it's very similar to what you hear EQT talk about today, but it was a smaller version. Then, in the late 1990s, EQT expanded out of Sweden. I think that's a really important moment. Their first office was in Munich, but it was a really important part of the company's history because they wanted to invest across Europe.

Someday, they had aspirations to even go further than that. But they realized that they couldn't do that with just a small team sitting in Stockholm. If they wanted to grow and do it in a thoughtful way, they needed people all over. And that really led to their local-with-locals approach.

The local-with-locals approach is something they talk about a lot today. It's a differentiator for EQT. They have people all over the world—30-plus offices at this point. So if you have a deal getting done in Italy, it's led by an EQTian in Milan who probably knows the selling family, knows the local nuances, and knows the local regulations.

That was born by necessity, really, in the 1990s, when they realized they couldn't do it well just sitting in one office. When it comes to putting a €22 billion fund to work and doing a really good job with it, they really only need to do about a deal per office, versus a lot of peers that manage big funds out of 2 or 3 flagship offices. It becomes much more difficult for those firms to generate great returns cross-border.

Yeah, deal-making is very much a contact sport, and having some connectivity to the counterparty certainly helps. I think in the US, there are often clichés about coastal elites trying to make their way to the Midwest to do deals and not quite clicking. Yes, I think this is a particularly good example. Before we push forward, I want to get into a lot more of what you just mentioned there.

If you were to take a snapshot of what truly differentiates EQT—and I think you mentioned some aspects with thematic investing—but if we were to take the big names in the US, like Apollo, KKR, and Brookfield, and compare EQT, what stands out that might feel different about EQT's operations from those large players in the US?

It's probably a good moment to just discuss why we like the alt space to start with, and then I can get into the differentiating factors. Obviously, I've been investing in the alts for many years, as we discussed. I would say, number one, we're in the middle of a multi-decade shift from banks and traditional asset managers to alternative capital providers.

When you look at the alts, they can provide capital with more flexibility and more consistency. The alt space is gaining share and growing 10% a year. We think the alt space will double by 2030 and probably double again by 2040.

Number two, within the alt market, the space is consolidating and the leadership positions are really durable. There's a lot to like. You mentioned some of the other alt players, and there is a lot to like about these scaled players. If you look at the list of leading alts 20 years ago, it's more or less the same list that you see today.

These are very durable businesses, and the barriers to success are very high. Number three, the financial models for these businesses are really attractive. They have long-term capital and 10-year funds. The businesses are easy to model and predict for the most part, and they generate a lot of free cash flow.

Lastly, with few exceptions, the large alts are run by highly ambitious, talented, and innovative leaders, which is hard to find in most companies, but it tends to concentrate pretty well in the alt space.

To your question, what makes an attractive alt for us? How does EQT differentiate? We think about quality in the alts like we do for any business at Counter, which is based on product and profits. For product quality, this is a people business. The quality of the business really starts with the quality of the people and whether the firm has the ability to recruit and retain amazing people.

We talked about EQT having industry-low attrition rates. They've got a great culture, the ability to recruit and retain amazing people, and they pay them well. So it self-selects for great investors who want the accountability around carry.

Second, we want to see the firm have a repeatable process for generating great returns at scale. If a firm can't do that, we aren't interested. EQT has generated 20% net IRRs for its investors at scale for many decades. It's incredibly hard to do, but they've got a process around it that is repeatable and has endured.

Then, third, we want to see a firm that innovates. If you look at the traditional asset managers of yesteryear, they were seemingly unstoppable. Most of them didn't innovate, and they are shrinking ice cubes now. So it's really important to us as long-term investors that we see great people, great process, and innovation.

As for its profit model, we'll get into it a bit later. EQT has 50% EBITDA margins with low capital intensity and lots of free cash flow that it delivers back to shareholders through dividends and share buybacks. So it's a great fit for how we think about high-quality businesses at Counterpoint.

You mentioned one of the dynamics that exists within all of finance, which is the idea of generating great returns even as you're getting more scale—more scale, bigger in size. The math says it's going to be increasingly difficult to keep up that rate of return. What would you say that process is for EQT, in the best way that you could describe it?

I'm sure there's some secret sauce that exists only behind closed doors at EQT, but what would your own description be of what allows them to do that?

I love talking about the differentiation here, so I could go on for a while. Please pause me if it's too much.

Give it to us.

The differentiation at EQT really starts at the beginning of the life cycle of an investment, which starts with the firm's thematic investment approach. They're investing in growing sectors. A lot of what they do is software, healthcare, and data centers. Within those, they're typically buying a leader that will benefit from those secular trends and from pricing power.

With regard to sourcing, EQT operates that local-with-locals approach that started in the 1990s. Again, it allows them to do 2 things. One is that if a deal is getting done by a local, that local investor has better knowledge of the respective geography and the local nuances, and usually has a relationship with the seller.

That helps with the returns, but it also leads to higher-velocity deal sourcing. As we talked about, on a €22 billion flagship fund, EQT only needs about a deal per office to get that fund completed. So it's a real differentiator.

From there, they future-proof the companies they own. That work typically starts with establishing a new board, improving the management team if needed, and establishing a plan to digitize the business. That's their big thing: digitizing and future-proofing businesses.

The board has an informal subcommittee called a troika. This is really unique to EQT. The troika is made up of the portfolio company CEO, an EQT partner, and the chairperson, who is generally an independent adviser from the EQT network.

On a side note, EQT's specialty in governance and management is really unique. It's consistent with its Nordic heritage. A lot of it is attributed to the Wallenbergs, and governance practices in Sweden are, I think, unique globally.

I sat on the nominating committee of a public company for many years in Sweden, and it's a really admirable corporate culture where the board explicitly works for the nominating committee, which explicitly works for shareholders in Sweden. It's a great process and great alignment, and a lot of that is attributed to EQT and the Wallenbergs.

After the acquisition, EQT gets to work on adding further value, often through making bolt-on acquisitions. Historically, making bolt-on acquisitions in private equity was a super time-intensive process. You'd usually have an analyst and an associate put together a list of maybe 20 or 30 targets.

It might take them 2 or 3 weeks to create that list, debate it internally, and see if they could find contact information. EQT realized this was an important part of their playbook, and they started what, 10 years ago, was just a data-analysis tool called Motherbrain.

Motherbrain actually evolved into an AI-automated decision-support tool over time, and it's a real differentiator for them. Effectively, it pulls data from tons of sources online, including PitchBook and LinkedIn, and then combines that data with EQT's internal data from prior diligence.

When a portfolio company today wants to make an acquisition, instead of an associate spending 2 weeks pulling a list together and maybe reaching out to people a month or 2 down the line, Motherbrain can take a few prompts and give the team a list of targets immediately.

Usually, that’s accompanied by revenue size and contact information. So that’s been a really cool differentiator for the business. I’ve given you a lot here, but when you combine all that—the strategy around thematic investing, the repeatable process, future-proofing companies based on local with locals, and an intense focus on governance—it’s all resulted in EQT owning companies that, on average, grow revenue 12% to 15% a year and EBITDA 15%-plus a year.

The composition of EQT’s fund returns is much more growth-driven than multiple-expansion- or leverage-driven, and that’s what’s resulted in top-quartile return generation at scale, with 20% net IRRs for their investors.

Yeah, it certainly seems like there’s operational expertise that’s differentiated and stems from EQT’s business itself into the businesses that they own. That’s reflected in some great naming conventions for the various things that they roll out as well.

One of the things that we usually talk about when we talk about alternatives, which we haven’t really gotten into with EQT, is the leadership team. You described some of the early leaders of the business. Usually, you have someone who holds the torch, and then we’ve seen with some of the North American alternatives that there’s been a passing of the torch recently. I know EQT has a slightly different model, so walk through that and the players who are involved, or even how you would frame leadership’s importance to what they’re doing.

Leadership at alternative asset managers is so critical because, again, it is a people business. Going back to first principles on what makes a great alternative asset manager, the ability to recruit, retain, and manage great people is a first-principles requirement for success.

When you look at a lot of the alternatives, they’ve dealt with succession in a pretty similar way. They’ve started with a founding group and passed it on to a successor group that they think can run the business for 15 to 20-plus years. You’ve seen that in the US with some really great leadership transitions that worked very well.

This was a big risk if you go back 10 or 15 years. There was a big philosophical question about alternatives going public and how they would be able to handle the transitions from founder groups to the next generation. Would that disrupt the businesses in meaningful ways? I think most of the alternatives did a really fantastic job of finding a great next generation of leaders.

If you look at EQT, they’ve handled it differently. Instead of the founders picking a new leader or a new generation that can run the business for 20 years, they’ve decided that they will run the business more like a typical operating company. If you look at average CEO tenure in public markets, I think it’s about 5 years in Europe, and EQT has been pretty similar in its current form.

EQT has been around for about 30 years. They’ve had 5 or 6 CEOs. Christian Sinding, the CEO for the last 6.5 years, was recently elevated to chairman and passed the reins on to Per Franzén, who had been running the private equity business for a number of years.

Christian’s young. I think Christian’s in his 50s. He’s got a lot of energy, and I actually got to spend some time with him in London last month. I asked him, “Why now? You’re young. You’re obviously a talented manager. You’ve done so much for this business.”

He’s had an incredible impact on EQT. He started with EQT something like 28 years ago. He ran the private equity business and ultimately led the firm through its IPO in 2019. Since then, EQT’s assets have increased 4x, and the firm’s returns have been excellent. So it’s been an intensely productive period for the company and a lot to be proud of for Christian.

But as Christian pointed out to me, EQT’s culture is very forward-thinking and very forward-looking, and they believe deeply in elevating generations of leadership while those new leaders still have the energy and the ambition to create substantial value.

Per Franzén is taking over as CEO from Christian, but when Per elevates from head of private equity to CEO at EQT, it’s not just one person elevating. It’s actually a whole group of people who get to elevate. Again, this is a bit different from how the US alternatives have thought about succession. Like everything at EQT, they do it in their own way and stick to their values, and this is one of their values.

Yeah, there was a somewhat viral interview with Chris Hohn and Christian on stage recently, and my immediate takeaway was that Christian does not look old enough to retire. When you consider what he went through over the past 5 years, that is a career’s worth of accomplishment. So I can certainly understand that.

But I do have this sense of succession planning as a piece of very effective governance, tying it back to the culture there. I think it’s perhaps overlooked sometimes in the US, where succession planning is done when there’s an event that requires it or a catalyst that makes it necessary, rather than being thought out well in advance. I think the precedent of these 5-year-or-so tenures would point to that.

So it is interesting to see how that differs from some of the other businesses, where it feels like the value really sits with a lot of the people at the top of the business and it’s hard to differentiate the enterprise from the individual.

Yes, absolutely. One other question I had, which somewhat referenced the idea that the alternatives space has had this opportunity recently with the flexibility they have, especially relative to banks or traditional funds, is regulation. One thing that comes to mind whenever I think about flexibility is regulation. Regulation is the one thing that can hamper flexibility and restrict it. Is there anything unique about operating in Sweden or operating in Europe that is very different from what North American funds would have to think about when it relates to regulation?

Yes, operating in Europe is actually quite complex. The EU is obviously a big place, but there are tons of borders, and each country has its own set of regulations, its own set of rules, and its own cultural nuances. So I actually think operating successfully in Europe is very, very difficult.

It has some pros and cons when it comes to regulation around the financial side of the business. Sweden actually has its own central bank, so that’s unique within Europe. It has the Riksbank, as it’s called, whereas there are broader central banks that manage the rest of Europe, the UK, and the US. So that’s a nuance.

But the Riksbank has always been, I think, really well managed. Its focus is basically to manage inflation, whereas a lot of central banks around the world have dual mandates to manage inflation and employment. That focus on stability at the Riksbank, I think, actually makes it a really nice place to operate as a financial services firm.

And then a benefit, depending on how you look at it, is that you do have, at times, looser regulation around financial services firms in the US and, at times, in Europe. The US has really adopted this model of asset bases being the important focus. When you hit a certain asset base, that’s when you get more regulated in the banking system. That starts at $50 billion and $100 billion, and then $250 billion is a real line in the sand where your regulation goes up substantially from there.

In Europe, I think they think more around systemic risks, and they tend to have really responsible operators as a result who don’t want to get into that gray area of systemic risk.

The last thing I would say that’s interesting about operating in Europe as a financial services firm, and specifically for EQT, is that based on their ability to have entities in different jurisdictions, they benefit from a really low tax rate. EQT’s tax rate on a blended basis is something like 10%. They actually don’t get taxed at all on the carry business. That’s a nuance that might change over time, but the tax rate is very low.

So the free cash flow generation that they can send back to shareholders is actually substantially higher than in other markets.

I always find those nuances and nitty-gritty details interesting, and they can make a difference. Some of those differences in rates can compound quite substantially over time.

It’s interesting to hear about their strategy, which you outlined really well. One question I had on the thematic approach: Are they deploying that with specific funds dedicated to those themes, or are those underlying themes that exist within a broader private equity fund, where they’re going to target these 3 themes within this vintage? How do they approach that?

Historically, it was all part of big flagship private equity funds. The flagship strategy at EQT was roughly 40% healthcare and 60% tech-enabled services. There was a lot of software and a lot of tech. Again, Blackstone led the charge and really created the playbook for everyone. Everyone should be very grateful for that.

But over time, EQT has actually started launching sleeve strategies that allow investors to have exposure to one trend if they want it. An example of that would be energy transition.

The infrastructure business really focuses on growing sectors. It’s not toll roads or what I would call boring infrastructure. These are growthy businesses like data center businesses that have lots of underlying tailwinds from things like AI, digitization, and AI infrastructure.

But within that, they’ve also realized that people might want exposure specifically to data centers, and they can focus on that through co-investment, or specifically on energy transition, where EQT is very good. So they have an energy transition fund, and I think these sleeves will be more and more common.

Another example is that EQT Asia, which we’ll get into in more detail, really has an advantage in India specifically. Something like 40% of the Asia private equity business at EQT is India-focused.

They've done a tremendous job investing in India. It's a very hard place to invest; you need talented people on the ground, and that's become a strength. I wouldn't be surprised at all if EQT launches an India sleeve at some point so people can focus just on that. And, by the way, I think it would be really valuable for their investors if they chose to do that.

Unbundling private equity, or private capital, just like everything else—the conglomerate era is no more—certainly makes a lot of sense, and I think we see it everywhere. Diving into the strategies that you laid out a bit, there are increasingly sleeves of different strategies that they're looking into.

I think when I looked at various presentations that talked about private assets, real assets, and wealth, would you say that there is a bellwether strategy for the business that you think is viewed as the most important thing to monitor, or a growth strategy that you think is most important to keep an eye on? Obviously, they're all important, but how would you frame that?

They have 4 strategies. We're actually tremendously excited about all 4 of them, and they're really great franchises. Stop me if anything becomes interesting, but the first strategy is private equity in Europe and the Americas. It's about €50 billion of fee-paying AUM. Again, they invest behind thematic sectors, so it's a lot of healthcare and tech within that strategy. That's most of the strategy if you really break it down.

I think they're trying to find important tech and healthcare companies of the future. Usually, they're leaders in their markets, but they're businesses that need some help future-proofing and growing to get to that inflection point and hit the next level of their growth.

A good case study, for example, would be IFS. IFS is a leader in industrial software, or software that helps companies manage their assets and people. It's effectively an ERP software company for capital-intensive industries. This was a publicly traded company 10 years ago that nobody really cared too much about. It was doing a few hundred million in revenue, it was on-premises software, and it was growing single digits. EQT took it over and really got to work.

I think they had the vision that this was a great market, and they got to work on future-proofing the company. What did that mean here? It meant switching the company, replatforming the business into a true cloud provider.

Today, that business is doing €1.2 billion of ARR, growing 30%-plus, with EBITDA margins of 30%-plus. So think about that as a transformation. That is not your old, boring private equity playbook. That's taking a business at €300 million of revenue, growing single digits, 4x-ing the business, and taking revenue growth from single digits to 30%. It's really impressive. And that's the playbook at EQT.

I'm guessing somewhere in the €1 billion to €3 billion range in terms of acquisition size. Is that in the ballpark of what they're normally buying? How much does that vary, just in terms of the size of what they're doing when they deploy capital?

Yeah, we think a lot of their check sizes in the flagship fund end up being in that €500 million to €1.5 billion range, on the very high end. Their most recent fund was €22 billion in private equity. That's one of the bigger private equity funds in the world.

Within that, they also have the ability to tack on co-investment. So if they have a need for more capital, they can tap their partners, and the partners can help with co-investment. It's also something that big LPs really like. They view that co-investment as an opportunity to bring down the blended fee rate, and it's good partnership.

On a side note, it's also a reason that we're comfortable that EQT can continue generating great returns at larger and larger fund sizes. If you look back over the last 5 or 10 years, yes, their flagship fund has doubled in the last 7 years—the fund size has doubled—but at the same time, they use so much co-investment along the way that they've actually been investing more and more over time, bigger dollars over time, and they've done a really good job with returns. So the private equity business has generated a 21% net IRR historically for investors.

EQT-ians like to call themselves performance gatherers, not asset gatherers. But if you keep generating 21% net IRRs for your investors, they will happily give you more and more money, and that's why this business has grown so quickly.

Yeah, one certainly leads to the other. That is the case. I interrupted you as we progressed through some of the strategies, so we can push on.

Yes. EQT Asia is a strategy that we're really excited about. EQT Asia manages about €25 billion of fee-paying AUM if you include the most recent fundraise in 2025. EQT acquired this business in 2022. It was formerly the Baring Private Equity Asia business. Everyone refers to this business as BPEA, but it's a fantastic franchise that's been generating great returns for investors for almost 30 years.

Almost half of EQT Asia's business is in India, and they have effectively no China exposure. But the India market is really attractive. It's growing GDP at 6% to 8% per annum, and EQT is buying tech and healthcare leaders in that market that can typically grow revenue 15% to 20%.

The interesting thing about India is that it's really underpenetrated from a private equity perspective. It's actually a very small private equity market. We think EQT has a 10% or 20% market share of that private equity market in India. So they've established themselves as a leader, but you really need people on the ground.

If I think back, actually, early in my career, 10 or 15 years ago, I was looking at a couple of software businesses in India that I thought were quite interesting and attractive. I called a friend who's been investing in and operating businesses in India for, at this point, 30 years. I said, “Hey, here are some interesting businesses. What do you think I should do?” He said, “Don't do it.”

He said, “You're going to get your face ripped off. You can't invest in India sitting in California. You need people on the ground. You need to know the players. You need to know what's going on on the ground.” It was really good advice that he gave me, but it's even more impressive looking at what EQT has done.

They've just created an unbelievable business. They've got a great team. I think they have a repeatable process to find great businesses there. So when you think about what EQT Asia is doing, think IVF businesses in India: an underpenetrated market, big impact on society, and a nice long-term grower.

Or Nord Anglia, which is an education business. They took it private almost, I think, 17 years ago and have owned it off and on since then, but they've expanded that business into India, and it's a great case study. I think they've actually grown revenue 10x in that business since they bought it.

More importantly, Nord Anglia has a 96% student retention rate. 40% of its students go to top 100 universities globally afterward. So it's had a great impact on society, but it's also made EQT investors a lot of money along the way. And I think that's what EQT really is known for: great impact and great returns.

Was the purchase of Baring Private Equity Asia's business unique to that specific situation, or is that something they use as a strategic tool to expand into new strategies?

It is something that EQT has used as a tool—the M&A muscle. Frankly, I'm always skeptical of M&A, whether it's in the financial services industry or the tech industry. It comes with different risks.

For tech, the integration of the technology is always very difficult, more difficult than people think, and it creates a huge risk. It takes focus off other things management can be doing. In financial services, it's also a huge risk. It's a people business. You have to get the cultures right. Sometimes there's organ failure, and it can be a huge problem.

So I was actually skeptical—I'll admit it—when EQT bought BPEA. I thought, gosh, this is going to be tough. It's a big business. It's a different geography.

I'll give EQT credit. They did an unbelievable job not only sourcing this investment, or sourcing this acquisition, but also integrating it. The leadership at EQT Asia is exceptional. They've actually held on to the shares they got as part of that acquisition, and some of the leaders there are now the largest shareholders in EQT. The returns have been exceptional. So that's been a great one.

EQT also bought what is now its real estate business. It was known as Exeter before that. I think this was a slightly easier integration, if you will, just because of the geographies. EQT acquired the Exeter business in 2021, and they've roughly doubled Exeter's AUM since then.

So while M&A is really tough in financial services, I think EQT has a thoughtful process around how they do it. They do it consistent with their values, and they've done a pretty good job. Even though they don't have credit today, for example, I could see them leaning back into credit through an acquisition sometime in the future.

That was a future question on my list, so we got that one checked off. Give us some description of the remaining buckets that we haven't talked about.

Yes. Moving on to the infrastructure business: of EQT's €140 billion of fee-paying AUM, this business is about €40 billion, and it's growing really quickly. I'm glad we're touching on it.

Consistent with EQT's thematic strategy, this business isn't buying toll roads. They're buying assets in big thematic growth areas. They specialize in things like digital infrastructure and energy transition markets. Both of these are massive growth opportunities, but they require a lot of deep sector expertise, and EQT has been investing in both for a really long time.

By chance, both of these sectors have really exploded with AI, which requires a lot of digital infrastructure or data centers, but it also requires a lot of energy to power those data centers.

So, EQT is in a really good spot now with what the world probably looks like over the next 10 years. The numbers are just totally astronomical. Both of these sectors will require many trillions of dollars of investment in the next couple of decades, and the capital just isn't there. Whenever you have a large supply-demand imbalance like this, it generally results in really great returns. We think EQT is probably the best positioned out there to capitalize on AI trends.

Briefly digging into the business of EQT Infrastructure, it's the same size flagship fund as private equity. They have a €22 billion flagship fund in infrastructure, up from the last vintage at €16 billion. Historically, they've generated about a 2.5x gross MOIC on their infrastructure business, so we're really excited about it. Not only do we think EQT will continue generating great returns in infrastructure for its investors, but we think that will result in a lot of growth in the flagship fund. They're also launching sleeve strategies outside of that, which will supplement growth.

Yeah, it's certainly very thematic and of the moment; it speaks for itself. What is the final bucket of the four?

Lastly, we could briefly cover the EQT real estate business. This was formerly known as Exeter, an acquisition they made in 2021. Again, they've doubled AUM at Exeter since then, to about €20 billion today.

Digging into the business of EQT Real Estate, it's a really unique business because they effectively raise a new vintage every year. That's different from how a lot of opportunistic real estate investors work globally. They put that to work, and then they go back and raise more. Like the rest of EQT, the real estate strategy is focused on thematic investing using a local-with-locals approach, and that's a real advantage in real estate.

Around 90% of the business is industrial and warehousing, so it benefits from trends like global e-commerce. Their local-with-locals investors again make it a great fit, but it's vertical real estate. They talk a lot about doing real estate, not just investing in real estate, meaning EQT does all the development, operations, leasing, and property management themselves. Again, this is super unique in the industry. In fact, they're so good at it that when they sell a property, the buyer usually retains EQT to continue operating the asset.

I think that just speaks volumes to how good they are at operating. Imagine buying an asset from a competitor of yours and then paying them to continue running that asset. That's literally what people do with EQT. Historically, the EQT real estate business has been top quartile or top decile across its funds—just a really exceptional track record.

Blackstone Real Estate is the gold standard in the industry, and obviously they've done an exceptional job. But we think EQT has the right to grow based on its historical returns, and we think this can be a much bigger business over time.

If you put all of that in the soup, we talked about four strategies. I gave you a lot there, but EQT as a whole is generating amazing returns for its investors. As a result, the LPs are entrusting it with more and more capital over time. We think the GP can double its assets in the next few years, and then probably double its assets again in the next 4 or 5 years after that.

One follow-up I had on the real estate strategy is the annual fundraising. Is there a reason why they go with that versus what you would see in the other strategies?

It's really interesting. I think it's actually a part of the history of Exeter, which was a unique asset manager that did things that way for so long. When EQT bought it, they had the idea that the rest of the industry does it this other way, raising opportunistic funds every 3 to 5 years. But actually, this way that Exeter does it makes a lot of sense. They've done a really good job doing it, and the returns have been incredible.

I think there are some benefits to it, and I think the investors, the LPs at Exeter, have been so happy that they're really excited to go back and invest more and more every year. You can't do that unless you have really strong DPI, or distributions to paid-in capital. If you're not giving money back to your investors, you can't expect them to re-up every year. But EQT has seasoned its investors, if you will, to get them used to the idea of giving more and more money, or entrusting the firm with more and more money, every year. It's really unique.

The last piece of the deal process that I wanted to talk about relates to exiting an investment. I think you brought up a very interesting case where they owned a business for 17 years, which would fall outside of any traditional fund timeline. Do they have a different philosophy when it comes to owning investments? It's something that's very topical right now in the market, and I'm interested in the thought process around that. I think it's something that Christian was actually talking about in that previously mentioned interview. How do you think about their approach to the final step of the process and realizing a return on an investment?

I think this gets to EQT's ability to innovate over time and stay ahead of the group when it comes to both sourcing and exiting. When we look at exiting, historically in the alternatives market, there were really 2 ways to exit an investment: either sell to another private equity firm or a strategic, or take a company public. The problem with those 2 things is that they both require, at the very least, a very stable macro environment, and usually a pretty good macro environment, to get either one of those done.

EQT has innovated a lot as far as how it exits. Obviously, it still has the regular-way exits—the IPOs, the sales to strategics, and the sales to private equity firms. Increasingly, it has started using alternative forms of exits, some of which are unique to EQT.

The first one that they just started doing recently, and I think you'll see a lot more of, is what they call a private IPO. Historically, if you wanted to sell a secondary, you would just sell a $50 million or $100 million chunk to one buyer. You would negotiate directly with that buyer. What EQT realized was that the secondary market is growing very quickly, and there are actually a lot of buyers for potential secondaries. Why not run a process like you would with an IPO? You can sell €1 billion of stock to 20 investors, and behind the scenes, they're probably competing with each other for capital.

It's giving EQT a better price, but it also allows them, every year, for a business they love, to have this private IPO, hold on to what they want to, and monetize what they want to. That's a really cool piece of innovation. We think they'll use that a lot more in the future.

They continue to use the secondary market. The secondary market is growing very quickly. It's actually got a lot of tailwinds behind it, and we think that, with more and more capital, it will be a benefit to private equity sellers as well who want to monetize a bit.

The last one is something we talked about: running with the winners, as EQT says. That can be in the form of continuation funds or selling investments to future funds. They have to be careful because continuations of bad deals would really upset investors, but EQT has historically done a good job holding on to its true winners for a long time. They have investor trust in this regard.

If you look back at the last 2 really big ones, they held on to Nord Anglia for 17 years, off and on, and IFS for 9 or 10 years. These are huge multiples of money. So, when they go to investors and say, “Hey, we want to do a continuation vehicle for this investment, or we want to sell it into our new flagship fund,” investors actually trust them to do that.

I have to say, I love the private IPO strategy. That's a new one, but I like it and it makes a lot of sense. It's so interesting to see the innovations, as you mentioned.

The other side of the coin, which we've talked about throughout the conversation, is fundraising. They hit on a staggering number—I think it was €75 billion in the 2021 to 2023 fundraising cycle. Focusing on that period of time, was that a surprise in terms of their ability to raise at those levels? Did it come in line with the expectations that you might have had? I just want to capture some of the historical precedent because they've obviously laid out a number for the future, coming off that big number. How do you remember that time frame and their ability to execute on it?

Yeah, actually, I do think this was a bit of a surprise, at least for me. EQT was managing about €50 billion of fee-paying AUM going into that last fundraise. That jump organically took them from something like €50 billion of fee-paying AUM all the way to €125 billion. Then they acquired a bit, and all in, they got to €130 billion to €140 billion of fee-paying AUM, which is where they are today.

But for a company with €50 billion to jump and raise €75 billion is unbelievable. I think it really comes down to a trend that we've seen. This was an aha moment for me, frankly: at sub-€50 billion and sub-€75 billion, you have a few channels that you can really go to for fundraising, and it's really the more traditional institutional channels.

You don't have a lot of retail because your brand isn't there, and you don't have a ton of exposure to sovereign wealth funds that are writing those €1 billion to €2 billion checks. What we've noticed is that when alternative asset managers get to that €50 billion to €100 billion scale, their world really opens up. If they have good returns, they can go to other retail channels, new retail channels, and tap them. Retail is 10% of the business today. It was probably very little—a very small piece of the business—10 years ago.

We think it'll continue getting bigger. More importantly, the sovereign wealth funds writing €1–2 billion checks all of a sudden are right in their wheelhouse. What we've seen is that when these alts hit the €50–100 billion range—which is very difficult to do—if they have good returns, they can hit this inflection point where their world opens up and their channels open up. I think EQT really experienced that same trend.

Yeah, it's always interesting when you find something that has a slope that inflects and there's an acceleration in growth, or at least in the opportunity. When you mention retail, should I be thinking about that as high-net-worth channels that exist in large pools through whatever you might call brokerages, or whatever it might be? Is that the right framing for the retail bucket?

When we refer to retail in the alts space, a lot of it is really coming from the wirehouse channels. Think of the big banks that serve high-net-worth clients. Again, this is a benefit of not going first. If you look back at the history of this market, the idea that alts would serve retail was a bit of a pipe dream for a long time.

Blackstone did a ton of work on this, and then other great investment firms in parallel were doing a ton of work—Ares and others that you know that are public, like KKR, Apollo, and so on. At EQT, they've built out this retail business called Nexus, and it's a NAV-based strategy unlike its other funds. It effectively offers evergreen vehicles to retail investors, frankly following the Blackstone playbook that's been so successful.

This is like BREIT, the non-traded REIT that Blackstone has, and BCRED, but for EQT's flagship funds. EQT started with a retail vehicle in 2024 in private equity. They quickly raised €1 billion and realized, “Wow, this is a big opportunity. Our brand is actually good enough that we can do this now.”

In 2025, they're set to launch 5 more retail vehicles around infrastructure and different geographies. This is going to be a big growth driver for them. Again, we think retail for EQT is probably 10% of the capital today. We think it can go to 20% of AUM over time. Those are big buckets, and I think they'll take advantage of them.

As you think about the fundraising target of €100 billion for the next cycle, we've touched on how you drive returns that lead to a higher likelihood of successful fundraising. What else would you discuss when you think about monitoring that target and following along with the pace of fundraising? You have the fee base and then the carry, and the fee base is a big piece of the story. How do you think about framing that? What is another very large number?

It is a big piece of the story. What we've seen historically is that stock prices tend to be very well correlated to asset growth for the alts, so it's an important part of the thesis. It starts with generating great returns, like you said, and having LPs who are willing to entrust you with more and more capital.

I think for the upcoming fundraising cycle, there's a lot of skepticism in the market from investors and research analysts as to whether EQT can raise €100 billion. It's a lot of capital. They manage €140 billion today, so adding €100 billion to that is no small feat.

If you look at the market, rates are a lot higher than they were during the last fundraising cycle, and a lot of investors are increasingly full up on private equity. At the same time, large LPs need to generate good returns to cover their future liabilities, which are also growing very rapidly with higher inflation and higher social inflation. Those investors are looking to best-in-class private equity firms to help them accomplish those goals.

I think smaller PE firms will struggle in this environment, especially those that haven't generated great returns for their investors. But the large, best-in-class PE firms with great returns are frankly benefiting and gaining a ton of share. We just saw a couple of weeks ago that Thoma Bravo announced it had raised $34 billion—€24 billion in the flagship private equity vehicle and €10 billion in sleeves around that vehicle. That tells me that the market's healthy enough for great investment firms to continue raising money, but I think the mediocre ones will have a lot of trouble.

While the market's tougher today than it was in 2021, EQT also has some growth drivers today that it didn't have back then. We talked about the retail business, continuation vehicles, and the sovereign wealth channel that's becoming a bigger part of their business. Lastly, EQT is innovating and launching these carve-out strategies, like the transition strategy, regional strategies, and future strategy.

Even if the fundraising environment is tougher, going back to the building blocks again, we build up and predict this business based on each fund. When I look at each flagship fund they're trying to raise across private equity, Asia, infrastructure, and real estate, the returns and the DPI have been so good in the last 5 or 10 years that you build those up and realize those franchises are likely to continue growing pretty substantially.

The last thing I'll say about it is that the first data point we have on this fundraise is BPEA, Baring Private Equity Asia, which is raising its flagship fund right now. The last fund was €10 billion. It looks like this next fund will either hit the hard cap at €14 billion or maybe end up at €12.5–13 billion. But it's a 30% step-up, and that's consistent with what you want to see for them to go from €75 billion in the last fundraise to something more like €100 billion in this fundraise.

Yeah, it's interesting how the power law shows up. It feels like what you're describing in the private equity space is another example of that being the case. One thing you mentioned there, which is admittedly how I thought about this—the asset growth and what assets they have under management—a fee-based model is very easy to understand and run through in Excel, versus the investment results, which most people just aren't going through the individual funds to model out.

Do you see large gaps or opportunities, just from your own perspective looking at these as stocks, where there's a disconnect between the AUM and what they're generating within the funds themselves that creates opportunities?

Oh, definitely. If you go back 10 or 15 years, the best time to invest in these alts was always when people were not expecting much in the form of carry. That's a lesson that I got to see from many of the other alts, and it's something that we've applied to EQT.

If you look back to 2015 and 2016, investing in firms like Apollo and Blackstone, macro was shaky and public-market investors were very reluctant to ascribe value to the future carry that could be generated by those great firms. It turns out that was a great time to invest because those were growing, innovative firms. If you fast-forward, of course, they did generate a ton of carry, and on top of that, they innovated and grew substantially in the years ahead.

We're using that pattern recognition here to our advantage. At the moment, analysts are expecting very little for EQT in the form of carry over the next few years. Meanwhile, EQT has generated carry on every fund it's ever had since the early 1990s, and management has said that, just on the existing funds, they think they'll generate over €8 billion of carry.

That doesn't include the funds from the next fundraise. It's pretty likely that you end up getting back almost a third of your market cap in the form of carry just in the next 5 years, and then, of course, the firm can continue generating a lot more carry after that.

It's a very interesting observation that then leads into a feedback loop with the fundraising. It's fun to get into the weeds on this. I think we've covered the financial model at some high level, but can you describe how you would frame the business, maybe from an income-statement standpoint through margins, which you described a little bit, into free cash flow? Just whatever description you might have, and the easiest way to frame it for EQT?

Yeah, absolutely. As we talked about earlier, the reported accounting—either GAAP or IFRS—for these businesses is very complicated because it often requires that these companies consolidate their underlying funds. You really have to parse through it and understand that there are effectively 2 earnings streams that matter a lot to EQT. The first is the management-fee business, and the second is the carry stream.

Starting with the management-fee business, EQT earns roughly 1.5% management fees on committed capital. That's important because market swings don't move revenue around like they would for a traditional asset manager. In 2024, management fees were about €2 billion. That's 1.5% on the €140 billion of fee-paying AUM, and EBITDA on that revenue stream was about €1 billion, or roughly a 50% margin. That margin is going up over time.

When we think about EQT raising another €100 billion, more or less, they can do that with the same team. The incremental margins are tremendously high, and we'd expect those margins to continue going up. In the industry, that earning stream is known as fee-related earnings, or FRE. Based on fundraising cycles, EQT has historically experienced a really big step-up in FRE every few years. Those step-ups can be 50% to 80%, and we're about to get one of those.

The second earning stream is carry. EQT earns 20% of the profits on its funds; that's the carry portion. From the carry revenue it generates, it pays about 70% to its deal teams. That's higher than a lot of the other alts globally, but it helps attract really great investors and results in very long-term employee retention. The GP, or the public shareholders, keep about 30%.

From an accounting perspective, the carry to the GP—that’s us, the public shareholders—rolls through as net revenue at almost 100% margin. So, again, the firm is generating very little carry right now, and historically, that’s a great time to invest in the alts. We think that carry will step up to €1 billion-plus of annual net revenue in the next few years.

One important side note on the carry: EQT funds have a structure known as a European waterfall. Meaning EQT only generates carry at the tail end of a fund, after its investors have received their full preferred return of about 8% annualized. After that, EQT gets 100% catch-up, and they generate a lot of carry all at once.

This is different from many of the U.S. players who benefit from American waterfalls, meaning they get carry after each deal is exited, and then their investors can claw that back later if the fund ends up performing below the pref. So, based on the European waterfall, EQT, again, is generating very little cash carry right now, but that’s an opportunity because we think that they will generate a lot of carry in the next 5 years.

It’s interesting to hear some of the nuance, and I know, to your point, the accounting conventions can be a struggle. But even that higher portion that goes to the deal team, you can make a very strong case that it is the best alignment that you can have as a shareholder in terms of what they’re being rewarded for. Totally agree.

When you compare alts against one another, can you compare the financials? You mentioned the percentage that would go to the GP. Is there anything in the margin profiles of the businesses that are comparable to one another? I’m just curious if there’s anything else that stands out. It might just be that GP carry, but given the nature of the operating leverage that exists within these, I’m curious.

Yeah, I think the biggest nuance, or the biggest thing to look out for when studying these alts, is the difference in the balance sheet profiles. EQT is a capital-light business, meaning they have a very small balance sheet. EQT pays out the majority of its fee-related earnings and carry earnings to shareholders in the form of dividends and stock buybacks. So, putting that all together, that equates to something like a 3% to 5% free cash flow yield per annum right now, going up probably to 8% to 10% in the next few years, and all of that will come back to shareholders.

The other strategy that some of the alts have taken is the balance sheet- or capital-heavy investment strategy, which is to grow the balance sheet and compound it as much as they can over time. I would put KKR and Apollo in that bucket. And then, going even further, they’ve actually acquired captive insurance companies to add other liability streams, if you will, and add other earning streams to the business.

That’s a much different profile and a much different bet, if you will. I think this jury is still out on what that means in the near term and long term. Interestingly enough, this is a great debate, but I think it’s quite possible that the capital-light models have more stability in the near term because when you have a tough macro or a tough market, and public market investors don’t know what’s on the balance sheet, they tend to ascribe very little value to the balance sheet. That’s just the nature of public market investing.

With that said, I think there’s actually a very good argument to be made that the capital-intensive businesses, or the balance sheet-intensive businesses like KKR, have more durability because in 30 years, when the market changes and maybe the alts of today are considered the legacy traditional managers of 2050, KKR and others will be able to use their balance sheet to pivot into those new markets and innovate.

They all have their own distinct advantages and disadvantages, but the interesting thing about investing in the alt space is you get to pick your poison. You get to pick the flavor that resonates with you.

And we’ve alluded to risks, but what really stands out to you for EQT as an investor in terms of risks to the thesis you laid out and risks to the business? There are the obvious ones, but what really stands out to you?

There are a few risks here. The first, for any alt, is its ability to recruit and retain great people and stick to its process. Particularly in Europe, we think EQT has some distinct advantages that allow it to recruit amazing people. It has a long track record of great performance, a culture built around transparency and authenticity and the Wallenberg values, and people like that. And it pays a really high portion of carry to its deal team, at roughly 70%, versus many of the other alts that pay people less than that. So that’s an advantage for EQT.

With all that said, we track human capital retention and cultural data points constantly to inform our thesis, but that’s a big risk with any alt. The second key risk here is macro. EQT is unique in that effectively all its business lines are private equity in nature. Its private equity businesses in Europe and Asia are obviously traditional private equity. Its infrastructure business, in many ways, looks like private equity. They aren’t buying toll roads; they’re buying and building data center businesses, for example.

And a good chunk of its real estate business is opportunistic, high-return investing. So EQT sold its small credit business a few years ago because they thought it wasn’t a great fit for their strengths as active owners. So they don’t have a sticky, fee-centric credit business like many of their peers.

As a result of that, it is a slightly more macro-sensitive business when it comes to exiting private equity investments. You don’t need an incredible macro environment, but you need a stable macro environment. And the truth is, we haven’t had a lot of financial stability in the last 5 years. So it’s been a volatile environment that makes it harder for private equity players like EQT to generate carry.

And because carry is such a big part of this business, it is actually meaningful for returns. They need to generate carry for us to have a satisfying return, which we would view as a 20%-plus gross return on this investment over many, many years. So that macro piece is important.

With all that said, we think EQT is innovating in ways that will allow it to continue exiting investments and generating great returns for its investors. And then the third risk is a philosophical debate, a philosophical question that has been true, I think, for all the alts for as long as I can remember. And that is: can they generate high returns with larger and larger fund sizes?

EQT’s most recent flagship private equity fund was €22 billion. The flagship infrastructure fund is about the same size, and that’s about double the size of the flagship funds just 7 years ago. Can they keep generating 20% net IRRs at this increasing scale? And if they can’t, people might not be willing to entrust them with more and more money. So it’s really important for the thesis.

There are a few ways that we got comfortable with EQT’s ability to generate great returns prospectively. One is that their process just hasn’t changed. They continue to buy great businesses at fair values and businesses that can grow 12% to 15% per annum, which is really powerful and super unique in the private equity world.

Two, their funds historically had a lot of co-invest required to close those deals, which is another way of saying that when they had a €15 billion or €16 billion fund, they were actually probably putting €25 billion to €30 billion to work. So they’re used to doing this at scale. And three, we think their local-with-locals sourcing model and sector expertise are differentiated, especially in Europe, which has a lot of family businesses. Private equity is really underpenetrated there, and EQT’s model is a great fit for that market.

And I always like to get a sense of the valuation framework that one might apply for a specific business or industry. You seem to be the right person to talk to about this, about EQT and alts as a whole. Talk about how you approach valuation from a framework perspective and how that might differentiate from the space. Less so the price target that you might have in mind, but more just around the framework that you would use for valuing one of these businesses.

This is actually one of the really fun parts of investing in the alts. There aren’t many sectors today in public markets that are still inefficient. People mostly know how to invest in tech companies and how to value them. People mostly know how to talk about industrial companies and value them.

If you look at the alternative asset managers and you even go in and look at a research report with comps, and you compare it to 3 other analysts on the Street, they’ll all use different frameworks. They all use different multiples. One of them might be using fee-related earnings pretax and not even thinking about carry, just talking about the FRE multiples.

The next one might use total net income for 2025, and they won’t even mention whether carry is under-earning or over-earning for that year. And so there’s a lot of inefficiency in this market that actually continues to create a great opportunity.

So let’s step back for a minute, and I can share how we value the alts. I think our way of doing it has had some predictive qualities and some consistency that we see, or at least a correlation to good outcomes. Every alt has a little bit of a different carry profile, and as we’ve talked about, some are private equity-heavy, like EQT, and they generate a lot of carry, while other alts generate very little carry.

So we try to value the carry business, remove that from the enterprise value as if it were cash, for example, and then isolate the value of the management fee business. EQT’s management has said that existing funds will likely generate about €8 billion of carry, or more, in the coming years. That’s net of payments to their employees, so that’s €8 billion to the public shareholders. And on top of that, they’re kicking off a big fund raise for €100 billion that can probably generate many billions more of carry over time.

There are a few ways to value carry. You can use an NPV, or you can capitalize it at a mid-single-digit multiple of annualized earnings. The number comes out to roughly the same: We think the carry business here is worth something like 10 billion euros, or a third of the market cap. In our base-case model, EQT will generate a lot of carry in the next 5 to 10 years. On a net basis, probably between 30% and 50% of the market cap will be returned to shareholders just from carry.

Doing that exercise allows us to isolate the management fee business, which is really important because then we can compare it on an apples-to-apples basis versus other managers that might have different strategies. The way we do it at Counter is to isolate management fees, and we always look at net income after burdening for stock-based compensation, depreciation, and taxes—or stock-based comp, capital intensity, and taxes.

On this basis, the space trades at an average of about 35 times forward net income, and the average alt is growing management fees by something like 6% to 10%. On a side note, EQT is pretty unique in that it has very low stock-based comp. So you’ve got a quality-of-earnings benefit here: low stock-based compensation and a low tax rate relative to peers globally. EQT trades at about 20 times this isolated management fee net income, something like a 30% to 40% discount to most of the space, but it will grow at much faster rates than the space over the next 5 years.

On a free cash flow yield, we think EQT again will generate a baseline of a 3% to 5% return to shareholders via dividends or stock buybacks in 2025 and 2026. That should grow to something like a 7% to 10% free cash flow yield in the years ahead after that. So, back to your first question, based on growth and quality of earnings, we think EQT deserves a premium, but it trades at a big discount right now. We think a lot of that is due to its geography and lack of carry generation in the next 12 months.

Sean, this has been a fascinating conversation. We finish these off with the lessons that you can potentially take and apply elsewhere as an investor. What stands out most about EQT that could potentially be applied elsewhere?

I’ll probably pivot away from the investment side at this point. We talked a lot about the pattern recognition from lessons learned in the market from 2010 to 2015 that still apply today in the alt space. But I think, to answer your question more directly on what I’ve learned from EQT, looking at EQT reinforces a really important lesson, which is just to invest your own way.

It reinforces the importance of being authentic and sticking to your strategy. EQT, with its Nordic heritage, could have tried to copy others. It could have expanded into a bunch of new sectors in search of growth, but it didn’t do that. It maintained what some would call a really narrow focus, mainly on tech and healthcare, and it stuck to its values. So that really resonates with us at Counter Global. We have a really narrow focus. We only invest in tech and financial services, and it’s a pretty small number of companies we care about.

Well, this has been a pleasure, Sean. Thank you for joining us and breaking down EQT.

Thank you so much, Matt. I really enjoyed it.