EQT: Private Equity with a Purpose
Journal of Applied Corporate Finance, Vol. 32, No.3 (Summer 2020)
14 Pages Posted: 17 Aug 2020 Last revised: 5 Oct 2020
Date Written: July 15, 2020
Private equity (PE) has developed into a very large and important asset class. Over the past 20 years, the industry has grown from USD 650 billion in assets under management (AUM) to USD 5 trillion, of which today USD 1.7 trillion is “dry powder.” The primary factors driving this strong growth has been both the industry’s attractive and stable returns, and its active ownership model. Critical voices however are being raised, questioning whether the PE industry can maintain its historic returns, challenging fee and incentive structures, the industry’s perceived lack of transparency and the noticeable lack of diversity. This is of special interest as the PE industry has become large enough to have systemic effects on social issues like income inequality and environmental issues like climate change. In short, the industry is facing a challenge to its long-term license to operate. This paper describes the journey that EQT, the publicly-listed and Stockholm-headquartered private markets firm (and the eighth largest PE firm in the world in terms of capital raised over the last five years) has taken to develop its model for sustainability and positive impact. EQT is committed to “future-proofing” both its portfolio companies and itself. It has published a “Statement of Purpose” signed by the board of directors, is integrating a societal impact lens across its entire portfolio, has made public commitments about diversity and clean and conscious practices, and is leveraging digital technologies to enhance financial returns and real-world outcomes. The paper argues that EQT’s model of transparency and a mindset of making a positive impact with everything, reinforcing the interdependence of positive real-world outcomes and long-term attractive and stable returns have the prospect of future-proofing the PE industry itself — and its contributions to society.
Keywords: Private Equity, General Partners, Limited Partners, Future-Proofing, Sustainability, ESG, Positive Impact, Sustainable Development Goals, Digitalization, Purpose, License to Operate, Transparency
JEL Classification: G11, G23, G24
Suggested Citation: Suggested Citation