EQT seeks €5bn for core fund

The new fund will be closed-end and have a 25-year lifecycle, but will offer redemption options for those investors wishing to exit sooner, partners Daniel Pérez and Fabian Groene explain.

Swedish private equity firm EQT is seeking to raise €5 billion for EQT Active Core Infrastructure. The fund will invest in companies, primarily in Europe and North America, that provide essential services and have a risk-return profile based on stable cash yield generation, inflation protection and low volatility, the firm said in a statement.

“This is something that we’ve been contemplating for quite some time,” Daniel Pérez, one of the partners who will be managing the fund, told Infrastructure Investor. “We’ve been running a business development project for a little over two years and we thought the time was right for this core strategy.”

Pérez said EQT had several reasons to launch the fund now. “We see a lot of interesting deals that we would really like to be able to do, that are attractive investments and a great fit with us and our clients, but not a great fit with our existing value-add strategy,” he explained.

“The other thing is that these days, we’re doing 95 percent of the deal sourcing based on sector themes, and with the core fund, we feel that we can strengthen our presence in the sectors that we target and thereby remain relevant to management teams, intermediaries and the market overall.”

The main sectors EQT expects to target through its active core fund are power and utilities, transport/logistics and digital infrastructure. “It’s in these three sectors we see the bulk of the pipeline right now,” Pérez said. “And we also expect it to be those sectors where we’ll see the pipeline going forward.”

A hybrid structure

The new fund will have a longer holding period than its 12-year flagship infrastructure funds. “We underwrite investments with a 15- to 25-year holding period, but at the same time, there will also be very attractive redemption options for our clients who want to exit the fund at an earlier point in time,” EQT partner Fabian Groene, who is also a member of the fund’s leadership team, explained.

“So, we look at the structure as more of a hybrid structure, where we have closed-end fund elements in that it has a 25-year lifecycle, [but] we’ve found a nice way to combine the best of both worlds – the open-ended and closed-ended funds,” Groene said.

EQT Active Core is the firm’s second attempt at a longer-term, core infrastructure strategy after it scrapped plans in 2015 to launch an open-end fund. It initially planned to raise between €500 million and €1 billion, before growing this to several billion, Infrastructure Investor reported at the time.

The fund will invest in companies “that actively support at least one of its six sustainability objectives,” EQT said in the statement. These are: “energy transition and decarbonization; circular economy and resource efficiency; equitable digital opportunities; basic utility and social services for all; sustainable global trade; and accessible mobility solutions”.

Asked whether the EQT Active Core team might pass on an investment opportunity should it not meet one of the six criteria, Pérez said: “the answer is clearly yes”.

“It’s not only because we want to do good,” he added. “It’s a framework that’s designed to do good, but perhaps the most important aspect is that it’s designed to help us select deals that 25 years from now will be the winners of the future.”

In addition, EQT Active Core will develop tailored decarbonization plans for each investment and set greenhouse gas emissions reduction targets for its portfolio companies according to its Science-Based Targets, targets that were approved by the SBTi last October.

“The difference here is that we will actually be around when these targets are supposed to be met,” Pérez commented. “Whereas if you invest for a five- to seven-year horizon, you set the targets but you’re not there when the targets are supposed to be delivered. We will be.”

In addition to Pérez and Groene, there are eight more members comprising the fund’s management team, including Alex Greenbaum, who joined EQT in New York yesterday from GIC.