EQT AB (publ)

Good morning, everyone, and welcome to the presentation of EQT's first half report. We've set for 2023 to be the year of execution, and for the next half hour, we will provide an update when it comes to our progress in fundraising, thematic investments, performance, and of course, our financials. As always, if you've registered ahead of the call, you should have received an email with your personal PIN code to participate in the Q&A. You can also click the telephone conference at the top right corner of the live stream window to ask questions. So with that, I'll hand over to Christian. Next slide, please.

Good morning, everyone. We've continued to execute on our strategic plans during the first half of the year. We launched DQG Nexus, our first product to offer individual investors access to DQG's diverse range of investment strategies. We've largely finalized the integration BPA and it's gone quicker and been smoother than expected. And we're realizing the benefits of having a global diversified platform. We're also the first private markets firm to set science-based targets. And now we take the next major step with EQT's net zero guidelines, whereby all of our funds portfolio investments should be on track to deliver on their own net zero pathways by 2040 or before. Being at the forefront of sustainability will make our portfolio companies more valuable, And it also strengthens IKITI's position as a climate leader in private markets. The fundraising environment remains challenging, but we're still making quite good progress. IKITI 10 has reached over 90% of its target fund size, and we expect to reach the 20 billion euro target. Infrastructure 6 is currently at about 11 billion, and we're also there confident in reaching the 20 billion target next year. However, the newer fund strategies are more impacted by the current fundraising environment in terms of time and size. EQT is now at 126 billion in feed generating AUM and 224 billion in total AUM. And we have more than 50 billion of dry powder to invest during these interesting times. EQT has invested 11 billion euros in H1 of this year, more than twice the capital compared to the first half of last year. And of course, we remain laser focused on performance for our clients and our businesses and our buildings. All of our key funds continue to develop on or above plan. And we've taken action to manage higher interest rates to ensure portfolio companies can focus on strategic and operational long-term value creation and transformation. We continue to patiently explore exit opportunities. Halfway into this year, we're executing according to our plans with closed deals of around 4 billion euros. And announced a few, we've also announced a few that are not yet closed and working hard on the pipeline. Like for like, including BPA, we've grown management fees by over 20% compared to the first half of last year. while remaining focused on costs and scaling initiatives. And this is now reflected in our margins. Next slide, please. Since going public in 2019, she's grown to become a global leader in active ownership strategies. In PEI's latest ranking, we're the top three globally in private equity, and one of the only three firms in the world to raise more than $100 billion over the past five years. We've been taking market share steadily, jumping from 30 billion to over 100 billion raised. In infrastructure, a business we started in 2008, we're now top five globally, and we're already one of the largest in the world in value-add infrastructure. And Real Estate Equity Exeter is now in the top 10, having been number 486 when it was founded about 16 years ago. Our strategy is to be an active owner, where we transform companies and assets to drive performance for our clients. And this is why we're not in credit, an asset class where one is not really an owner, and thus we're also not focused on accumulating insurance assets. We are what we like to call ourselves performance chasers. Next slide, please. While challenging and taking more time, EQT's growth is broad-based. Across private equity Europe and North America, private equity Asia with BPA, infrastructure and real estate, we've already raised substantially more capital in EQT 10 compared to EQT 9, And BP8 was a record fund, being one of the largest private equity funds ever raised by an Asian-based private equity fund. And you can see Exeter's latest U.S. value-add logistics fund flows at more than twice the size of its predecessor and almost a billion above target, again, due to strong performance. We're continuously winning new clients, having more than doubled our client base since 2019. And our clients are on average increasing the size of their commitments across vintages. This trend continues in our flagship funds, despite the broader trend of clients now in the short term decreasing commitments in the current market environment. Growth is underpinned by top quartile performance. And four out of four of the key equity funds that are in realization or X mode rank also in the top quartile of distribution to paid-in capital. In other words, actual cash distributions to our clients, which is incredibly important through the cycle. Next slide, please. So the market for actively managed alternative assets is expected to double by 2030 and then double again by 2040. Companies are increasingly staying private. There's a little bit of an echo from the studio team, so if you could fix that, that'd be great. So companies are increasingly staying private. And in the US, the number of private equity-backed companies has grown steadily, while the number of public companies has actually seen a long-term decline. In a private environment, we can take a long-term view and deploy capital to truly transform and build businesses. by developing rapid EV charging networks, as in the case of Instavolt, or transforming transportation fleets while driving consolidation, as we're doing in Nordic ferry infrastructure, or automating and digitizing B2B and B2C relations, as in the case of Build Trust in North America. Our overall portfolio is thus performing quite well, but there remain pockets of underperformance that we're attacking together with our industrial advisors. Looking at a different angle, across all of our equity equity funds since inception in 1994, approximately 73% of our returns are attributable to sales growth and margin expansion. 25% is related to strategic repositioning, and only 2% is attributable to debt pay down. And in infrastructure and real estate, we transform companies and assets with a similar fundamental approach to value creation. Looking at our asset classes, outperform public markets across cycles for the past 20 years and more. And with the in-private markets, EQT is a top quartile manager outperforming most of the private markets as well. Next slide, please. So here we show that deal activity is cyclical, as you've seen, but markets always come back and the long-term trend is upwards. So now in the global economy, as we approach peak rates and inflation gradually coming down, we do see some indicators of confidence improving in the capital markets. Public equity markets are up year to date, paced by big tech and volatility has come down a bit. Debt market conditions are gradually improving, equity capital markets activity, IPO activity has picked up slightly. And also as this overall sentiment continues to prove, we hope that buyers and sellers are increasingly able to meet. All in all, while investment needs in areas such as infrastructure, energy transition, digitalization of societies, the changing healthcare infrastructure around the world, all those capital needs are still vast. So there's a huge need for private capital in the world. But uncertainty remains in the global economy. So we remain, as we say internally, positively paranoid, hoping for the best, but preparing also for the challenges that might be ahead. So EQT has a financial model. Next slide, please. Where our minimum fees are contractually recurring based on client commitments, which are typically 10 years or more in length. We're diversified across asset classes and regions. Our flagship funds are expected to deliver eight and a half billion euros of carried interest equity over the life of the funds, the flagship funds alone. And combined with our contractual management fees and our scalable cost base, it means we have a very generative, cash generative business model. And we're one of the few truly balance sheet light public alternative managers. We have a long-term opportunity to continue to scale our flagship funds and our recent initiatives, as well as to launch new initiatives. For example, the growth asset class hardly existed four or five years ago, and now we have a $2.5 billion growth fund. We're establishing a similar strategy in Asia, and we're considering a healthcare growth strategy as well. In addition to these types of initiatives, we expect to grow through acquisitions, Always with top performance and a great cultural fit being the key criteria, of course. Next slide, please. Being in a growth industry doesn't mean everyone will win. Larger managers like us are taking share with funds over $5 billion, raising almost 40% of capital in 2022 compared to only 20% in 2017. Last year, first-time fund launches were down by 40%. And the spread between bottom and top and bottom quartile performance is 18 percentage points. So being at the top of the performance league and the size league in combination is important. The foundation of our success, of course, starts and ends with our people and our culture. And we also have been able to strengthen our team, for example, with Francesco Storace just joining EQT infrastructure as a partner coming from Enel, one of the world's leading alternative energy producers. And this is further strengthening our commitment and expertise in areas such as the important energy transition. And of course, we're continuously developing the network of industrial advisors to make sure that all of our portfolio companies are supported and challenged in the best possible way. Looking at future proofing, we've been ahead of the curve in areas such as sustainability and digitalization and strive to remain there. For example, we're aiming to be the most AI literate investment organization in the world. using our own in-house developed AI platform, Mother Brain, to build on that, something we've been working on for soon 10 years. But it's also about developing new distribution channels, such as we're doing with EPNexus. And to hear more about that, I now hand over to Gustav. Next slide, please.

Great. Thank you, Christian. So, as we talked about in our Q1 announcement, we continue to see very interesting long-term opportunities in the private wealth space. Private individuals historically face difficulties investing into our industry due to ticket sizes, complex liquidity management, and longer lockups. However, this is changing with more appropriate structures, and we expect allocations to increase in the coming years. From an EQT perspective, we're attacking this on multiple fronts. First of all, we're aiming to increase the share of private wealth capital in our traditional closed-ended strategies through deeper and new distribution relationships. Secondly, we're launching broader semi-liquid strategies such as EQT Nexus in order to create solutions which are suitable for private individuals. And thirdly, we're looking at launching asset-specific strategies tailored for private individuals looking for specific sector exposure. In order to be able to capitalize on this significant market opportunity, we're also strengthening our capabilities. During the last two years, we've built a strong team and we now have around 50 employees working with private wealth across client coverage, product development, brand and operational excellence. And we're expecting to further build out these capabilities in the coming 12 to 18 months. Next slide, please. We're excited that we now have launched our first semi-liquid strategy, which offers easy access to a range of EQT strategies through one single investment. EQT Nexus will invest across our value add strategies with the key benefits being lower investment amounts, the possibility for periodic liquidity, and a simplified way to be fully invested from day one. We started off in mid-May, so still early days, but we're off to a very promising start, both from an end client perspective, as well as the interest from distributors. However, as we said before, this is a long-term opportunity for us, and it will take time to scale. As a reference, we have one peer that launched a fairly similar product approximately four years ago, which is now at around 3 billion euros in AUM. EQT AB has made balance sheet investments, which has now been transferred to EQT Nexus in order to seed the fund. This means that EQT Nexus starts off with an NAV of around 350 million euros and underlying EQT fund commitments of around 700 million euros. Going forward, for ICT Nexus, the rule of thumb is that approximately two-thirds of the NIV will be fund commitments and hence included in the fund sizes for the underlying funds, such as ICT 10 or Infra 6, while approximately one-third will be investments outside of the funds and hence fee-paying AUM on a standalone basis. And with that, let's move into an update on the fundraising side. Next slide, please. Despite the tricky market, we have raised more than 10 billion euros across the platform during the first half of 23. In Nikiti 10, we've closed out more than 18 billion euros, and we're highly confident that we will reach the 20 billion euro of target fund size, even though the tail end is taking slightly longer. Certain clients, including several private wealth platforms, have communicated that they require additional time to finalize their subscription and that the fundraising will therefore continue into early 2024. Infra 6 has held its first close with approximately 11 billion euros. A significant majority will be raised in 2023, and the fund will be open well into 2024, when we expect the fund to reach its target fund size. Newer strategies, such as, for example, IktiFuture, an active core infrastructure, continue to progress, but more slowly, and hence, it's also harder to reach the target fund sizes in today's market. EQT Exeter US Industrial Value Fund 6 held its final close at $4.9 billion, exceeding the target size of $4 billion and close to 2.5 times the size of Fund 5, driven by the top decile performance and the scaling benefits for Exeter being part of the EQT platform. However, also in real estate, we sense that the fundraising pace has slowed. We continue to focus on the current fundraisings of US Multifamily II and the European Logistics Core Plus II, which will both continue well into 2024. Finally, the EQT Public Value Fund has decided not to raise additional commitments, effectively moving into a closed-ended structure. This means that the fund will discontinue further fundraising and return proceeds to clients as value is realized. There is no time limit for exiting the portfolio companies and public value will still be able to support the existing portfolio companies with additional capital if needed. As a reminder, the public value fund represents less than half a percent of our fee generating AUM. However, our approach to this topic is in line with our way of developing the business, where we try new things and not everything will be a home run, but we always take responsibility and address issues directly. in order to ensure the best outcome for our clients and other stakeholders. And with that, I will hand over to Olof. Next slide, please.

Thank you very much, Gustav. We increased the investment pace somewhat in the first half of the year. Notable investments include Radius Global Infrastructure by UKT Active Core Infrastructure, three investments by Infra6, Laser Logistics, SK Shields and Win3, and IMG Academy and HDFC Credelia by BPA8. Investment levels in EQT's key funds are now at 20% to 25% in EQT 10, 15% to 20% in infrastructure 6, and 25% to 30% in BPEA 8. Our investment pace is never linear, but overall we are trending towards a three-year cycle. Looking at exit activity, we signed the full exit of Vistra from BPA5 and 6 following its merger with Tricor in BPA8. EQT's mid-market funds realized Elab and BBS Automation in Europe and V-Bill in Asia. We also tapped the equity markets in the first half of the year with EQT9 having its first realization with a partial sale of Bayer Ref. And in the US, we priced the IPO of Kodiak. Turning to financing and the interest rate environment, existing portfolio companies have increased focus on cash and profitability. And in certain companies, we've strengthened capital structures to ensure financing does not limit the ability to realize the full potential plans, be it through continuous investments or acquisitions. For existing portfolio companies, the maturities are mainly in 26, 27 and 28. And we're applicable. We're already now addressing some of the 2026 maturities. Financing conditions are constructive for the types of companies we own, often being market leaders providing essential services or being supported by secular growth trends. We see the non-investment grade bond and syndicated loan markets performing relatively well with investors in these markets being enthusiastic for new supply given limited recent issuance. Commercial banks are open for lending and the private credit market is open with competitive terms. For new financing, given higher base rates and wider spreads, we see approximately twice the cost compared to the levels we saw before inflation and rates started to increase. Although margins and coupons in the capital markets have actually moderated somewhat versus last year. Next slide, please. Fee-paying AUM increased by approximately 13 billion euros during the first half and we reached 126 billion euros of AUM by the end of the quarter. Gross inflows in the first half was primarily related to ICT infrastructure and ICT 10. ICT active core infrastructure contributed approximately 1 billion of gross inflows as well. And we've had some smaller impacts from ongoing fundraisers in EGT Exeter, with most of the industrial value fund six already being in our AUM at the start of the year. Investments in portfolio companies and funds charging on invested capital also contributed to the higher AUM. Realization activity was relatively low and some exits are yet to close, which means those companies and assets are still part of our AUM. Looking at the year-over-year figure, we had a meaningful increase with 65 billion euros of inflows, largely consisting of a mix of combination with BPEA, as well as EKT10 and Infra6 and other fundraisings. Next slide, please. Let me next provide an update on a few different topics. We announced this morning a buyback program of approximately 1.8 million shares, or less than 0.2% of our share capital. We expect to run these types of buybacks twice a year with the objective of keeping the number of outstanding shares flat over time in relation to EQT's equity-based incentive programs. When it comes to the 2021 lock-up revision, partners committed to reinvest half of the net proceeds into ECT funds over a fund cycle. More than 95% of these commitments have already been made. And since the lock-up revision in 2021, the stock liquidity has doubled approximately. Today, ICT is included in most major indices, including the MSCI ESG Leaders Index and the Dow Jones Sustainability Indices. Over time, we think it would be positive for the share if we had a higher free float and additional liquidity and higher index weights. Under EQT's science-based targets initiative, 21 portfolio companies have validated science-based targets and additionally 32 have started the process to set their own science-based targets. Taking the next step in our decarbonization journey, we recently published EQT's net zero guidelines available on EQT's website. All of the equity funds portfolio investments, except smaller investments, should be on track to deliver on their own net zero pathways by 2024. This is a step change from our previous targets that mainly addressed setting the targets. I will now hand over to Kim. Next slide, please.

Thank you, Olof, and good morning, everyone. Fund valuations were for the most part flat or marginally positive in the period, underpinned by continued underlying operational performance and supportive public market valuation benchmarks. Looking across key funds on an aggregated basis, our value increase year-to-date was around 8%. Operating performance remains healthy across the portfolio despite inflationary headwinds and rising interest rates. Performance in our infrastructure portfolio companies remains robust. We've seen lower EBITDA in certain companies due to the time lag of inflation pass-through. However, we expect margins to stabilize and improve in these companies. In our private equity funds, we see strong growth with technology services and industrial technology companies performing well on both top line and EBITDA. In healthcare, EBITDA is not growing as quickly as top line, but it's still at very attractive levels. In BPA equity, we also saw strong continued earnings growth in tech services and services. Valuations are somewhat impacted by some of the listed companies in the portfolio. Within real estate, valuations came down last year as we saw tougher markets. Markets are still weak, but in general around the levels from Q4. Our real estate portfolio is approximately 90% invested in logistics and predominantly in the US and to some extent Europe. Occupancy remains high, market to market rents are strong and valuation write downs have stabilized in 23. We see continued pressure in office, life sciences sector, but this comprises only a small part of the portfolio overall. We're starting to find interesting investment opportunities in real estate again. Next slide, please. Since our IPO, we've had two step changes in our revenues. First in 2021 from the acquisition of EQT Exeter and the fundraisings of EQT 9 and Infra 5. In 2022, we were approaching a similar step up with full year effects from BPA, from Infra 6 and EQT 10 in 2023 and 2024. And in H1 2023, that trend became visible with management fees growing substantially to 930 million euros. Like for like, this implies a growth of more than 20%. There's a mixed effect visible in the first half revenue, where the first close discounts on the flagship funds kick in, which we expect to normalize over the year. The step up in management fees comes with an expansion of our EBITDA margin, excluding carried interest and investment income, which expanded from 44% in H1 2022 to 50% in H1 2023, a testament to our scalable business model. Our EBITDA margin in H1 was 54% compared to 56% in H1-22. Carried interest and investment income in H1 of this year was off to a slow start based on a combination of flat-ish valuations and no significant exits in flagship funds that are in carry mode. Carry in that period was largely driven by Infra3, BPA7 and IKIT7. Our long-term carry expectations remain and we are working to execute certain exits in the coming quarters if markets remain supportive. We're in a strong position looking into H2, and as Infra 6 and equity 10 continue closing out capital, we will get retroactive fees throughout the year from these fundraisings. The ongoing fundraisers and capital we've raised in our other funds implies we have a large base of contractually recurring management fees for the coming years. Next slide, please. During H1, the number of FTE plus increased marginally from 1,790 to 1,814. Year over year, our FTE plus increased by more than 300, which was largely driven by the combination with BPA in H2. The increase during H1 is to a significant extent attributable to hirings within private wealth. As we've previously said, a slower hiring pace will continue with selective hires to secure growth in focus areas such as private wealth and the regions of North America and Asia continuing. These are also regions and areas with higher than average compensation levels. But we are actively working with both our end-to-end processes and with our cost base so as to be able to show further proof of our ability to scale over time. With that, I'll hand back to Christian for some concluding remarks. Next slide, please.

Overall, our industry is growing over the long term. And in that industry, we're taking share across strategies. We're now top three globally in private equity. We're top five in infrastructure and top 10 in real estate. We're performance driven and our growth is based on strong and resilient returns for our clients. The value creation model we apply rests on real underlying operational strategic improvements, growth, and future proofing. Thus, the higher interest rates we now see means financing costs are higher, but we've been through that before, and for us, it's not about financial engineering. EQT's nearly quadrupled EBITDA since our IPO, and we have contractually recurring management fees based on tenure plus client commitments. in addition to the carry from performance. EKG is on track to reach our performance targets across all of our key funds or even exceed them. And we continue to build EKG for the long term, for growth, by scaling our flagship funds, driving our recent initiatives, introducing new strategies and distribution channels and through M&A. And finally, we have a capital light business model, driving a strong return on equity, meaning we will also expect to generate substantially and strong cash flows over time. So those words I'd like to open up for the Q&A. Thank you.

Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star 11 on your telephone. We are now taking the first question. Please stand by. The first question from Hubert Ham from Bank of America. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I've got three of them. Firstly, can you talk about your fee margin? I saw that's come down from 148 bps last year down to 145. Just wondering why is that the case? Is it because of mix or anything else? And what are the expectations if that went forward? Thank you. The second question I have is on fundraising. Some of your other peers are talking about improvement in terms of client conversion over the last couple of months in terms of fundraising. Just wondering if you are also seeing the same improvement trends. And also tied to that, I know you're still targeting to hit the targets for your two flagship funds, but just wondering for the hard cap, is that something that is possible or are you just sticking to the target for now? And lastly, a question on costs. Just wondering how we should think about costs for the second half. Is it fair to analyze the first half, or should we expect possibly a pickup in the second half just because it seems like the FTE hiring has been a bit slow, and maybe you expect that to ramp up more in the second half? Thank you.

Thank you, Kim. Do you want to take one and three and I'll take two?

Yeah. And the first one was on the fee margin. And yes, you know, the fee grids are set at the commencement of a fundraising. So there hasn't been any changes to the fee rates. What you see there is a mix effect. Two things, basically. One is that in the early parts of a fundraiser, you're going to have first close discounts. And secondly, you are potentially having larger tickets at the early stage of the fundraising. So those would be the effects. And just commenting quickly on costs as well. We are not... I think you should use H1 as a reasonable guideline for the future of the year.

Good. Thank you, Kim. When it comes to fundraising, we have you know the question on the hard cap we typically actually don't comment on the hard cap but of course we we never give up until uh the last minute so for now we're just saying that we're confident that we'll reach the target for the two flagships that we're raising and i think in this market that's quite strong very few of our competitors are in that um same scenario um Clients, it's hard to generalize. I know which comments you're referring to. And it depends, as we've talked about before, there are certain clients in North America that are, for the time being, in the short term, over-allocated to private equity or private markets. There are many other clients around the world in Canada or in the Middle East or Asia or parts of Europe where they're under-allocated. Private wealth, of course, is coming. So I don't see a trend shift in the short term, but given our performance, our positioning and our way of raising capital, we have that confidence that we mentioned on being able to deliver on our plans.

Great. Thank you very much.

Thank you.

Thank you for your question.

We are now taking the next question. Please stand by. The next question from Holly Becker, just for Goldman Sachs.

Please go ahead. Hi there. It's Oliver Crellis from Goldman Sachs. Question on real estate. It looks like there was an SEC filing published last week for the potential launch of an equity-extern non-traded REIT. I appreciate this is just an initial public prospectus, but are you able to talk to your ambitions here at this stage? It looks like the fund size is up to $5 billion.

Thank you. Thanks, Oliver. For the time being, the way we're communicating around those types of initiatives is that we are going to be continuing to build products for the private wealth channel that will be open-ended and long-term in nature. So doing that, you know, we started in Europe with the equity nexus initiative. And there'll be probably more types of nexuses over time here. And, you know, assuming that strategy that was filed, launched, the first strategy that we launched with a North American base would be a real estate strategy. And as we get closer to sharpening the pencil on all the elements like we've done with the key to Nexus, we'll inform more and more about the targets, the timing, the structure of that investment strategy.

Got it. Claire, thank you.

Thank you.

Thank you for your question. We are now taking the next question.

And the next question from Hemingway for Carnage. Please go ahead.

Good morning. Thanks for taking the question. Maybe first a follow-up just on costs. It says that H1 is a reasonable starting base. Is that despite bonuses coming in in H2 that typically drives up the season of the H2 for higher costs? And then maybe also on cost with regards to your initiatives on private wealth. So currently you have about 50 FTEs focusing on it. How do you see that scaling in the coming years? And how is the compensation level compared to the rest of the group there? And then lastly also on Nexus, the 700 million euros in commitment, is that external client money commitments or is that kind of seed capital from ETT AB? And then one last question would just be on Exeter. How much dry powder is left there that's not fee-paying as of yet? Thank you.

I'll take the cost one. Do you take the private wealth? The related ones. Yes, we are accruing for bonuses during the course of the full year. So, as mentioned, the H1 number is a reasonable starting point to estimate the H2.

Yeah, and I would say on, let's say, private wealth in terms of the development on FTEs, what we said is we've scaled it up from zero to 50. We're not going to give an indication on how much it will continue to, let's say, grow. But it's an area which we are continuing to invest in. Especially, of course, as we launch new product, it will add people over time in it. But then, of course, it will also add revenues also over time. On EQT Nexus, so the reference to the 700 million is commitments to the underlying funds. And the NAV of 350 is then the combination of right now of external capital as well as partly EQTAB. And then over time, EQTAB will go out of that strategy.

And on the Exeter question, there's about 4 billion of capital available that is currently committed, but not fee-paying.

That's very clear. Thank you.

Thank you. Thank you for your question. We are now taking the next question. And the next question for Nolgi Blatt from BNB Paribas. Please go ahead. Your line is open.

Good morning. I've got three questions, please. Firstly, on Nexus, could you indicate perhaps which distribution channels have already signed up to distributing the product? And also, I'm wondering... The one-third, two-thirds from underlying funds and incremental AUM in terms of growth. Do you have the option to have a further incremental AUM if it's successful, for example, by co-investing more in funds on a co-investment basis? The second question is on exits. You outlined during the call that there were a number of exits potentially coming up. I was just wondering if you could perhaps quantify how much ramp-up we should expect in exits. And finally, on deployments, you've done well in deploying quite a lot of capital in H1. Again, if you could talk a bit about the outlook for deployments coming into H2 and beyond. Thank you.

Thank you. Gustav, will you take the first one? And then I'll take the second one together with Olof.

Yeah. And on Nexus, we're not going to, let's say, comment on which distribution partners that we work with. I think in general, what I can say is that it will be a few selected in the beginning. So often there is some form of exclusivity period, either for a region or similar in the beginning. And then over time, the plan is to be broader and have more multiple distribution partners in different regions. But initially, it will be fewer. And then on the second question related to Nexus, so there is absolutely a possibility. So what I talked about was only a rule of thumb, so to speak, being the two thirds and one third. If it would be that we would see a lot of inflows, we have, of course, the possibility to do more if we want to.

Good. Then when it overall comes to the starting with exit market as your question, You know, it is possible to make exits happen these days, either in sectors that are stable, growing, with strong cash flows, certain software assets, healthcare, healthcare IT, certain infrastructure businesses, for example. And it is possible to execute on smaller IPOs. So we did one earlier this year, or just a few weeks ago, and we have one that's active now in Japan. So we expect this kind of market to continue. Not a fantastic market for exits, but possible to execute with a very sharp strategy. And when it comes to investing, we said at the beginning of the year that we think disruptive times are actually an interesting time to try to find companies and assets that um maybe otherwise wouldn't be available um uh and um you know when we when we own companies and assets we do that for three four five six seven years so uh the most important element is actually finding the businesses being able to acquire them and then driving that value creation for the long term and we think this continues to be a time where those opportunities will be um you know exciting to go after actually Maybe Olof can give some more meat on the bone on some of those points.

Sure, Christian. I think if you think about the deployment pace, if you look at our flagship funds, you will actually see that you will have one fund that is slightly ahead of being on the three-year pace that we've talked about. You will see that one is slightly slower than a three-year pace. But overall, you will never have kind of linear investment periods across these flagship funds. So that's why we said... Generally, we are probably trending towards a three-year cycle across the flagship funds. And maybe to add on the exit side, as we also noted, we are further strengthening the global capital markets team that EQT has established, and we've also implemented practices from BPA to run across the global EQT platform. And I think there is also an opportunity for us to think a bit more creatively in terms of the exit processes and how we transfer ownership of assets in various ways. And we may not solely be dependent on M&A processes or traditional types of IPOs.

Thank you. Thank you for your question. We are now taking the next question.

And the next question from Magnus Andersson from ABGC. Please go ahead. Your line is open.

Yes, thank you and good morning. Just starting with a follow-up there on the previous question on deal activity if you could say something about how the bid offer spreads have developed through the first half of 2023 whether there was any change towards the later part of the six months that could could have an impact on on the second half of the year and also all of you sounded a bit more upbeat on the financing markets conditions, at least lately, if you think that's something that will improve further during the second half. That's the first question.

So, again, I'll start. Olof can compliment. When it comes to the... I'd say that as time goes by and the equity markets have improved somewhat, the IPO market is, I'd call, partially open. The credit markets have continued to improve, even though spreads remain significant, interest rates are up. And I'd say all the players are a bit more careful than they were in the past. The market is overall a bit better, and therefore you have seen more transactions from us and other players. We've seen one or two larger deals actually happening in the private markets, which is a sign of strength. So hopefully that trend will continue during the fall. But I think we're still living in a world where interest rates are continuing to rise, particularly in the U.S. The global economy is uncertain. There are geopolitical issues, et cetera. So that's why we try to remain pretty grounded and really go after companies where we have a crystal clear value creation plan, but also some form of downside protection. Rolf?

Yeah, I mean, the only thing I'd add is that we're, of course, active in the debt markets across the globe. And at the earlier parts of the year, you saw, for example, Asia being more stable and the availability of funds seems to be stronger there compared to other regions, I think what you've seen is probably a slight improvement, both in terms of the different sources that indicate that they are willing to provide credit and lend to us in both our existing portfolio companies and for new financings, and maybe a tad bit better pricing also than what we had at least, you know, in the earlier parts of the year or late last year.

Okay, so would you say that if conditions remain as they were towards the latter part of the past six months, then the second half is likely to look better in terms of deal activity than the first half? Is that the fair conclusion?

If you're talking about the overall market, I would say yes.

Transaction activity, yes. Yeah, yeah.

And I would add also, as we've said in the first half of the year, it's not necessarily that safe financing markets have been the gatekeeper for us to do deals, right? So the types of companies that we're investing in and that we own we have had financing available in the sweet spot size of the investments that we do throughout the year, frankly. We've had to work harder at finding the right structures and the right sources of capital, but that in itself has not been the only determinant of the slowdown in activity that we had, especially last year.

And maybe a final example of that is our offer for Decra in the UK, producer of pharmaceutical products for pets, one of the global leaders in that field. It's a five billion pound company. ish type of transaction with several billion in financing and several billion in equity. And we're quite proud that we're able to launch that transaction and raise the capital in this market. And I think that is one sign that deal activity is slowly but surely increasing.

Okay, thank you. And then a second one just on Nexus. You mentioned, for example, that the competitor that started four years ago now had three billion in commitments. If you could say something more about your own volume expectations and also perhaps on competition, because you're definitely not the only one that has discovered the private wealth segment as a way of tapping funds lately. Thanks.

Yeah, and we will not give, let's say, an outlook on our expectation in this. I think the reference that we made is a reference to some extent also what we think is possible in the market. But I think with that said, I think that we're not going to say more on our expectations. I think, as you say, there are more players in the market going after this. I think we see that the ones that, like us, are able to do this with our own funds, i.e. that do it directly internally, so to speak, have certain benefits with with the single layer of fees compared to other fund of funds. So we think that this will be a compelling and competing offer on the market.

Okay, thank you. And finally, just a follow-up on cost and headcount. It seems like your mix is... Getting more tilted towards actual own FDIs rather than consultants. Will that have any impact on your average cost per employee going forward?

It's a good observation. That is true. We have had historically more consultants as part of our overall FTE plus structure. And in the last year, we have had a plan to convert those into employees, either those or others. That just means that the costs move from one line to another per se. It's typically not because of extreme cost savings that we do it. It's for other operational reasons. So it doesn't dramatically change the picture.

Okay. Thank you very much.

Thank you for your question.

We are now taking the next question. And the next question from Angeliki Paestari from JP Morgan. Please go ahead. Your line is open.

Good morning. Thanks for taking my questions. First of all, on infrastructure six, I was wondering whether there is any seasonality in terms of the fundraising potential, meaning potentially a slower pace in the second half. SLPs now have made up their minds in terms of the 2023 allocations. And then hearing what you mentioned today, it looks like ICT10 and Infrastructure 6 are both going to remain open for some final commitments. a little longer than anticipated into 2024. Does that mean that we should not expect the next vintages, EQT 11 and Infrastructure 7, to launch before 2026? And last question on AI. You did mention in the beginning that you aim to be the most AI literate investor. Does that mean that you're now focusing a bit more on artificial intelligence as a theme within your investments? Thank you very much.

Thank you. I'll take the last one and Gustav, you can take the first two. When it comes to artificial intelligence, I was primarily interested commenting on our own capabilities. You know, we've, we, um, we created our mother brains, uh, uh, AI team, uh, back in 2014 when we launched our equity venture strategy. Um, and, uh, we've been working on, on our AI for, for that, for that entire time to build capabilities, both to find new investments, to help us into diligence, to help us track, um, decision-making and actually the way that we work internally to make the working environment around deal-making more efficient and easier in terms of information sharing. Now with generational AI coming in, we can actually accelerate the mother brain's capabilities and we're doing that. We have around 30 data scientists internally, plus our digital business development team, plus our tech team. that are all working together to drive that. So we think there'll be lots of benefits in terms of, let's say, speed of execution, improving access to knowledge, better decision-making, et cetera, slowly but surely over time. In our newer strategies, or let's say our strategies that are focused on younger companies and cutting-edge technologies like equity ventures, certainly AI has been and will continue to be an important investment theme And I'm sure also as AI develops, there will be opportunities also for our companies to drive positive change in those areas.

Can I just jump in and mention that Angelica, on the 5th of September, we'll do a webinar with Sven Tromqvist and Alexandra Lutz, who head up EQT Digital and who had Motherbrain. So I hope you can all participate in that webinar. We'll share some more details and you'll get to hear more about AI at EQT.

And when it comes to the first two questions, I would say that when thinking about the next generation of funds, you should mainly think about it from when are they started from an investment point of view. And that's what we said, that we still expect that to be around three years. So the final close timing is to a lesser extent impacting that, so to speak. And then when it comes to Infra 6 specifically, so to speak, I would say that, of course, there might be what we've said is that we just recently did the first close of 11 billion. And of course, there is an incentive related to that in terms of fee. which means that that combined with a little bit of summer period, you might have a little bit of slower pace in the coming, let's say, one to two months here. But what we also said is that we expect it to be, let's say, majority done by this year. So I think you should expect that we will continue to raise capital during the second half for Infra 6. And then that we will reach the target fund size by 2024.

Thank you.

Thank you for your question.

We're now taking the next question. And the next question from Jacob Brink from Nordea. Let's go ahead. Your line is open.

Thank you. Just coming back to the fundraising, on a more sort of top-down level, I guess the Infra 6 pace was relatively strong, at least compared to what I had expected, and I think also consensus. Also, listening to what is happening on some of your peers in the market, it seems like fundraising in Q2 has been quite slow, and you're actually accelerating the pace of fundraising in Infra 6. Could you maybe give some details on where the money is coming from? Is it existing clients? Is it new clients? Basically, what's the trend of the drivers of this growth, please?

Yeah. Should I take that, Chris?

Yeah, go for it, Josef.

No, I would say that on a general level, I think... We see a little bit of a mix on it, so to speak. So we both see, let's say, a large chunk of our existing clients actually stepping up and increasing their allocations. As we said, there are a number of our existing clients that have, let's say, the denominator effect and liquidity issues, which means that it will take slightly longer for them to commit to the fund. So I think in general, what we've seen in this, let's say, in this first half of Infra 6 is that we have a number of existing clients that have stepped up a little bit, but then also that we have, let's say, a very comforting level of new clients stepping in and taking a little bit more than I think we would expect in this early stage of it, which is encouraging.

Maybe I missed a number, but do you disclose the number of clients now?

No.

In Q2?

No.

Okay. But has the pace continued from what we have seen in recent quarters in growth in new clients? You mean in general or Infra 6? No, so it's on a group level or in total.

I think, of course, we've had a number of new clients coming into Infra 6. I don't think it's, let's say, it's higher or lower in terms of a trend in it. It's, of course, a little bit volatile depending on if we have a large fundraiser or not. So I wouldn't say that there's any trend in it.

Okay, fair enough. Thanks. And then just on exits, please. So basically, you have done quite a few acquisitions yourself in the flagship funds, but also other funds while exits in the activities, especially on the flagship funds, has been relatively muted, as we already discussed. Why do you think that is? Is it because EQT has better access to funding at reasonable levels or... Is it because of, like you said, Christian, that EQT is among the top fundraisers in the world or globally over the past years? Or why do you think there is this difference? And what does it take to kind of kickstart that peers can do like you?

That's a big and broad question. I think if you look back... five years or something like that. We try not to be market timers in terms of our philosophy. But what you can see in terms of the market, you can see when the capital markets are excellent, when the macroeconomic situation is excellent, and when our companies are performing, that is, of course, a really good time to drive exits. It's also actually a good time to drive exits of companies which are not performing so well. When times are tougher and capital markets are tougher, you kind of hold back some of the exits because you want to make sure you maximize the value of the best companies and it's harder to sell the underperforming companies. So we drove a huge amount of exits across the firm and so did BPA, EQT actually. during that time. So that's also why we're top quartile in DPI, which is an important measure. Actually, the industry is starting to say now that DPI is the new IRR. How are we actually delivering cash back to investors? So that started the cycle. And what we've also learned is to prepare very early. So we start to prepare our companies much earlier for exit than we did in the past. So that when the market conditions are there or when you get momentum with a strategic buyer, whatever it might be, that we can more effectively execute. So there's kind of multiple parameters around the market. the size of our portfolio, the youth of our portfolio, our DPI, and our fundraising momentum. And, of course, our overall returns are also solid, but that's really strengthened by DPI, and I think that's becoming more and more important to investors as they go through their cycle as well.

Okay. Thank you. And then maybe a more detailed question. On slide 28, you give a summary of the performance of all your funds and the carry left to be booked. I guess I was just wondering, just to make sure, when you write that carry that is left to be booked, is that you write that it's on the target level? So let's say that you have a front EQT 7, for example, above target, do you actually assume that it will come down or do you expect it to be flat here? And then secondly, can you just remind me how many more exits is needed in EQT 9 before that could come into carry mode?

I can comment on that. First of all, this is just mathematically using the target rather than whether we are on plan or above plan. So it is to simplify the analysis. And on the second question, as you know, it is a function of both exits and value creation. And it's not possible to give a sort of a number that so and so many deals has to be done before you get to carry mode. Historically, it has typically been in the region of three to four, but that could change. And we just made our first now, so we're not there yet.

Okay.

Very clear.

Thank you.

Thank you. Thank you for your question. We are now taking the next question. And the next question from Nicholas Herman from Citi. Please go ahead. Your line is open.

Yes. Good morning. Thank you for taking the questions. Just a couple of follow-ups, please, and then one other one. So just the two follow-ups. One on fundraising. I know the comments that you expect to see the target fundraising for ETT 10 and then for 6, but equally that you also don't want to give up on the hard caps yet. I guess just with those two strategies having been activated in mid-22 and end-22 respectively, once you reach the target levels, at what point do you stop fundraising? Is there a contractual point? at which you kind of need to stop after a certain amount of time has passed beyond fund activation or first close, or is there no such limit and you'll just stop once there is basically a limited chance of bringing in new money? So that's the first one. On the second one, on the second follow-up on costs, so again, take your comments on costs and first off being a good guide for the rest of the year but just on hiring um you've hired quite strongly in central that's mostly for private wealth but investment teams are flat i think real assets even even down modestly so could you talk about the outlook for hiring into the second half and maybe even 2024 please um and that's just one actually one little cheeky follow-up as well on cost i mean i also noted that cost per head actually looks like it rose in the first half despite you know i guess dollar weakness Just curious, what drove that, please, beyond maybe some conversion from consultants into internal employees? And then just finally, on M&A, I think I heard you reference that you'd consider acquisitions. Do you see opportunities? That was a stronger statement than I was kind of expecting. So do you see opportunities in the market, and do you see the potential to act over the next, I don't know, 6, 12, or even 18 months? Thank you.

Thanks. I'll take the last one, and then Kim and Gustav can chair the others.

I can start on the fundraising. I think the easy answer is yes, there is a contractual, let's say, agreement with the clients how long we can fundraise. So for EQT 10, That is in, let's say, the first part of 2024, while for infrastructure, there is a longer time period, just given that we just had the first close. So that will continue well into 2024 before we would be at that end. And I think it's always a combination of when do we see, what clients do we have left? What do we see, let's say, in the pipeline? And when do we think it's an appropriate time if we haven't reached the hard cap to close the fund? So there's no specific timing.

So just to clarify that, so you're saying that it's basically a... a 20 or 24-month stop after the first close? Did I understand that correctly?

There is a contractual level depending on when the first close is, yes. And then it's different depending on fund.

I see. Okay, understood. Thank you. I suggest we take some of the detailed questions where we've been running over an hour. So I'd suggest we try to focus on the conceptual questions and then we can follow up on details separately as well, of course.

I'll be brief on costs then. But essentially, I think our guidance or whatever you want to call it remains there, that we will be very restrictive in hirings in all other aspects than private wealth, to a certain extent, North America and to a certain extent, Asia. And those are the areas that we are. And when you see that central has increased we were basically keeping the rest of central flat with the exception of private wealth. So there shouldn't be any other increases there. So that really should give you a sense for the cost increases as well. M&A.

When it comes to strategy and growth, Then, you know, we do grow in multiple ways, as we said, you know, we scale our existing funds. We, you know, we of course want to grow and build our newer fund strategies and then we launch also strategies beyond that. And then we look at M&A. And, you know, if you look at what's happening more broadly in the private markets, we see here the same thing that we've seen in other professional services and investment banking or consulting or accounting or whatever, that there's a trend towards five or 10 or whatever the number may be global leaders. And then there are a number of niche winners, either geographically or in certain sectors. And the ones that don't have either of those edges slowly but surely get consolidated out. So we do have a number of approaches and conversations all the time. And When and if any of those are converted, that really depends on the combination of our strategy, the strategic fit, the cultural fit, and we like to partner with firms that are top performing. So I think that's all I can comment on for now, but then I think you understand the long-term trend.

Helpful. Thank you very much.

Thank you.

Thank you for your question.

We're now taking the next question. And the next question from Jacob from SEB.

Let's go ahead. Your line is open. Good morning. Thank you for taking my question. I think most have already been answered, but one last conceptual one for me is how should we, or maybe how are you thinking about return expectations going forward? I mean, the increase in new debt, so I guess you used less today in your acquisitions than a few years ago, but the equity ticket on the other hand have come down a bit. So should we still expect returns to be similar to what we have seen during the last five years, or how are you thinking about this?

Yeah, this is a very important question. You know, we, as opposed to some in the industry, did not reduce our return requirements when interest rates were you know, very low or even negative in some areas. So we're also not making any changes to them now. We continue to want to deliver on our target returns, you know, in this cycle, just as every cycle. And the way we do that is being active owners. Yes, of course, we have to choose and win the right companies and assets. But a huge part of the value creation is actually driven through the ownership period, through all the actions that we've talked about before with driving consolidation, innovation, digitalization of the companies, making them more sustainable, more future-proofed, whatever it may be, so that when we exit the companies and buildings, it's an even more attractive business environment. than it was when we acquired it. So we're not that dependent on the financial, let's say, on the interest rate side. But it is, you know, the debt markets are important because they enable us to use a bit less equity capital, of course, than we otherwise would have. So it's an important leverage element. But the cash flows and the interest rates, et cetera, is not the determining factor of how EQT creates returns.

All right, thank you so much.

Thank you.

Thank you for your question. We are now taking the next question. And the next question from Isabel Hedrick from Autonomous. Please go ahead. Your line is open.

Good morning. Thanks for taking my questions. I have two, please. So the first is on acquisition of personnel costs. So we saw €240 million charge for this half, following €201 million in the second half of last year. So do you expect similar charges going forward? And for how long and what kind of magnitude would they be? And then secondly, just following up on the M&A point, so private credit is one of the alternative asset classes where there's, again, long-term structural growth. And in the U.S., we've seen TPG recently reenter the market. Is this something you would consider or is private credit now definitely off the table for you?

It's a pretty technical one, so I'm happy to go into more detail at a different occasion, but essentially under IFRS, the proceeds that employees have received, in the context of these acquisitions that we have made historically and where these employees are subject to some sort of retained contract to stay on is considered under IFRS a personnel cost. So that's why we have those charges. So they are non-cash, they are things that have already been paid predominantly in shares to these employees. And they will continue until the lock-up or the periods when these people have to be retained are over. So that's three to four years.

We have a guide on our website, which is a guide to IKT's financial statements, which has a very logical explanation of how the various adjustments work in our financials.

Yeah, thank you, Rudolf. Now, when it comes to the strategy question on credit, you know, we... We had a credit business some years ago, and we divested that because we are, as you know, razor-focused on strategies where we can drive the value creation ourselves with all of our capabilities, with our industrial advisors, et cetera. That goes across from ventures through growth, through private equity, long-term PE, infrastructure strategies, and the real estate strategies. And we think there's a large opportunity to continue to grow all those strategies In particular, if you think about the long-term, the need for for driving change in society, whether it's digitalization or the energy transition. So infrastructure itself has a huge capital need for the long-term. Real estate is the biggest asset class in the world. Actually, it's bigger than all other asset classes combined. So we feel like we have a very significant long-term growth opportunity in the asset classes where we can really drive the hands-on value creation, while the credit side of the business or our industry is by nature more passive. You're providing credit to a third party and they manage the business and they drive it. So for the time being, we're going to remain razor focused on our active ownership strategies.

Okay. Thank you very much.

Thank you.

Thank you for your question. There are no further questions at the moment.

Okay. Very good. Thank you for all the questions. Thanks for the engagement. And we now wrap up the Q&A and wish everyone a very good summer. Thank you.

Thanks, everyone. Thank you. Bye.