One of Europe’s largest private equity firms, EQT, said its income from dealmaking fell more than 60 per cent as rising interest rates and an economic slowdown put the brakes on a decade-long buyouts boom.
The Stockholm-based firm, which manages €210bn in assets, warned of “substantially slower” deal activity and said raising money for buyout funds had become “more challenging” as it released its annual earnings on Wednesday.
“Internally we talk about being ‘positively paranoid’”, Christian Sinding, chief executive of EQT, told the Financial Times, referring to fears about how the economic environment would affect the firm’s ability to raise money and do deals.
“A year ago we were fairly positive, but during the year we became a lot more paranoid,” he added. “Now . . . we’re getting a bit more positive again”.
Private equity firms were among the biggest beneficiaries of a long era of low interest rates, as investors ploughed growing sums into their funds in search of higher returns, and cheap debt made it easy to finance deals. Those favourable conditions are now going into reverse.
EQT’s core earnings fell 25 per cent to €829mn in 2022. It made €208mn in adjusted investment income, including carried interest, down from €537mn a year earlier. Its shares fell as much as seven per cent on Wednesday morning before recovering some of their losses.
Raising funds “will take longer, even for flagship funds, and ownership periods are expected to be extended”, Sinding said in the results presentation. However, he said EQT had raised “substantial” sums and was “well positioned to deploy capital also during these uncertain market conditions”.
EQT will seek to raise more money from rich individuals at a time when raising funds from some institutions becomes harder. “Private wealth is one area where we will increase headcount”, Sinding said on a call with analysts.
Sinding told the FT that the firm plans to create two products targeting wealthy individuals, one in real estate and one in private equity and infrastructure. They would be “not as liquid as a mutual fund” but would have a “core liquidity element”, he said.
“We’re learning from the market and will try to design the best possible products we can”, he said. Last month, Blackstone limited withdrawals from its own semi-liquid investment fund for wealthy individuals, the Blackstone Real Estate Income Trust, after a surge in redemption requests.
On a call with analysts, Sinding said EQT had been careful during the boom years. “In this recent hot cycle, we did not maximise leverage in our portfolio companies,” he said, adding that it had also avoided “financial engineering like Spacs or cryptocurrency”.
Still, the firm did not escape a period of frenetic dealmaking at high valuations. EQT invested in Zooplus in October 2021 at a multiple of 58 times core earnings, a valuation that the pet food retailer’s then chief executive Cornelius Platt described as “remarkable” at the time.
EQT has marked down the value of some of its private equity funds. Its eighth fund, a €10.75bn pool of money raised in 2018, was marked as being worth 2.3 times the money invested as of December 2022, down from 2.6 times a year earlier.
Last year senior executives at EQT, including Sinding and chair and founder Conni Jonsson, sold $2.7bn of stock after a lock-up agreement was partially ended a year earlier than planned.
