EQT’s €15bn fundraise through a sustainability lens

Sustainability considerations, and social issues in particular, moved into sharper focus for LPs during EQT’s €15.6 billion fundraise over the past 15 months due to the Covid-19 pandemic.

EQT IX closed at €15.6 billion last week after launching in January 2020. It is focused on TMT, healthcare and industrial technology sectors and has already invested 40-45 percent of its capital.

Over the course of the fundraise, the global pandemic took hold – switching off large parts of the global economy and forcing businesses to operate in the virtual world – and the killing of George Floyd, a Black American, at the hands of a police officer in Minneapolis, brought issues of institutional racism in all walks life to the fore.

“The investors’ focus on ESG has accelerated over the past 12 months as the pandemic evolved,” Per Franzen, EQT partner and private equity co-head, told New Private Markets. LPs were interested in issues ranging “from health and wellbeing, to the environment and inequality”.

LPs had an increased focus on the social aspects of ESG and asked about diversity and inclusion, and how EQT dealt with the mental wellbeing of its staff in the firm’s internal operations, said Franzen.

Investors also asked how EQT measures sustainability performance in its portfolio companies, how it selects industries and sectors to invest in and EQT’s carbon neutrality.

“In spring, in the beginning, the focus from the LPs was more on, ‘What’s the short-term performance impact of covid-19 on your portfolios and how badly will your portfolio be affected?’

“Our portfolio was very robust and performed relatively strongly during the pandemic. And then [during the summer] as the LPs got visibility and comfort on our portfolio, the focus shifted even more to questions like, ‘Going forward, what does this mean for your investment selection? What does this mean for you future-proofing your companies from a sustainability point of view?’ Sustainability is the critical element of this,” said Franzen.

North America-based LPs contributed about a third of capital commitments, while Asia Pacific-based LPs committed about a quarter and European and Middle Eastern the remainder, Morten Hummelmose, head of client relations and capital raising at EQT, told affiliate title Private Equity International.

The global attitude to sustainability has shifted over the last year, Franzen added. EQT fielded ESG questions from European and north American investors, with more investors realising that “future-proofing your companies from an ESG point of view is simply smart business”.

EQT will draw on an ESG-linked credit facility for the fund. The firm pays a lower interest rates if it meets key targets, including 85 percent of energy use in its portfolio being renewable energy and 40 percent of board seats being occupied by women.