Private Markets 360° | Episode 49: Navigating Global Private Markets and Evergreen Opportunities

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Chris Sparenberg [00:00:01]:

Welcome to Private Markets 360, your insider's guide to the world of private investments. Today we're thrilled to have Peter Aliprantis from EQT joining us. EQT has rapidly established itself as a significant player in private markets, becoming one of the largest private equity firms globally. Peter will share insights into EQT's unique global strategy, their recent acquisition of Koller Capital to bolster their secondaries business, and how they're innovating with evergreen structures to meet the evolving needs of private wealth and institutional investors. Join us as we explore how EQT is addressing the shrinking public markets and uncovering new opportunities worldwide. Peter, welcome to Private Markets 360. It's great to have you. How are you doing?

 

Peter Aliprantis [00:00:45]:

I'm doing great. Thanks very much for having me today. Very much. Looking forward to the conversation.

 

Chris Sparenberg [00:00:50]:

Thanks so much for joining. Let's kick things off talking about EQT and its rapid growth in the US private markets. Could you share a bit about EQT's journey, tell us a little bit about their global footprint, what sets the firm apart and especially the recent acquisition of Koller Capital and how that plays in.

 

Peter Aliprantis [00:01:07]:

Yeah, that's a great place to start. The firm was originally founded by the Wallenberg family in Sweden. And as you all know, we're a Stockholm based firm and the Wallenberg family is the equivalent of the Rockefeller family here in the United States. So it started as a family office and they invest in a number of different industrial firms across the world. And ultimately that business grew into what is today EQT. And it surprises many people when I say this, but EQT is actually the second largest private equity firm in the world. We do not have a credit business. When you look at our business today, we have three businesses, private equity, infrastructure and real estate.

 

Peter Aliprantis [00:01:49]:

But as you also mentioned, we announced the acquisition of Koller Capital, which should close sometime in mid to late August. And that will include secondaries, both private equity secondaries and credit secondaries, which is extremely interesting to us. And the other thing that I think is a has been a significant differentiating factor is the fact that we are truly a global firm. And when you look at our investments across the world, roughly 70% of our investments are deployed outside the United States. So for advisors looking for diversified private markets, we are a terrific solution for those advisors.

 

Jocelyn Lewis [00:02:29]:

Peter, thank you for that overview. And I did not realize that EQT was the second largest private equity firm in the world. That is pretty impressive. So you mentioned EQT's strong focus on international investing and Diversification. And I'd like to dig a little deeper into that. So with your global reach, how do your locals with locals approach differentiate your investment strategy, particularly in regions like apac? And what unique opportunities does this global perspective unlock for your investors?

 

Peter Aliprantis [00:03:13]:

Yeah, it's a great question. You'll hear that phrase a lot here at EQT. Locals with locals and what it means to us. And it's really something that's embedded in our investment culture. And effectively what it means is that instead of having the deal teams based in, let's say New York or London and getting on a plane and flying in the example you gave to apac, whether it's to Hong Kong or Tokyo or wherever it is in APAC to do deals and then do the deal, get on the plane and fly home, we're structured very differently around the world. And what that means to us is that our deal teams and operations overseas are actually managed by our local experts who are on the ground in those local regions. And that we believe that's crucial for understanding and navigating those regional businesses and practices. So, for example, if you are going to operate in, in Northern Italy or southern Italy, if you have a team that's based in that region, more than likely you are going to be in front of a lot of deal flow.

 

Peter Aliprantis [00:04:13]:

If you're not there, it's just, it's going to be very difficult for you to access that. That deal flow. The other thing I would mention since you brought up apac, T has one of the largest private equity presences in apac and it allows us to. APAC has been an interesting area of investment for us because our presence in APAC really allows us to find private companies at better entry multiples compared to other markets. And we continuously emphasize to advisors the critical importance of diversification and exposure outside the US in today's market. And that doesn't mean we shouldn't invest in the US because about a third of our investments are also in the United States. But there are some concerns about valuation, about concentration risk in public markets. And so that global diversification we think is key.

 

Peter Aliprantis [00:05:02]:

And our investments both in EMEA and APAC I think really do show that we have a locals with locals approach that really allows us to gain an edge when we're investing there.

 

Chris Sparenberg [00:05:13]:

Incredibly interesting and some really shrewd additions to the firm over time that I'm sure have helped increase that footprint and your overall offerings. Would love to shift a little bit to talk about what's happening broadly across financial markets. Peter and in our Prep calls with you. We talked a lot about the shrinking number of public companies and the growing significance of private markets overall. Can you talk to us about how EQT views this shift and what the strategic implications for investors who might traditionally focus on public equities really are?

 

Peter Aliprantis [00:05:44]:

Sure. And I don't think it's going to be a surprise to anyone listening to this podcast that the US Public markets have dramatically shrunk over the years from roughly 8,000 public companies to around 4,000. And that trend is continuing. And what that means is if you're an advisor putting money to work for your clients and you aren't looking at private market exposure, you're missing out on a huge portion of the global economy. In fact, when you look around the world, in the US roughly 90% of the companies that have a hundred million dollars in revenue or more are private. In EMEA, that figure is about 95%, and in APAC, it's about 80%. So if you think about it, the public markets, although that's what most people talk about, because that's what everybody, when you watch CNBC or Bloomberg or whatever, everybody's looking at the public markets. But what's really happening, which is changing the dynamic, is that private markets are becoming much more and more mainstream.

 

Peter Aliprantis [00:06:52]:

And then of course, there's the secondaries market. And in particular, I'm very focused on. And we as an organization are very focused on credit secondaries because that represents a huge and growing opportunity. Last year, I think it was 200 to $255 billion in activity, which only accounted for about 2 to 3% of the total private equity volume, which is very small. And we would anticipate that credit secondaries will be a very interesting space for us in the next 12 to 24 months as a result of the transaction with our colleagues at Koller.

 

Jocelyn Lewis [00:07:27]:

I agree with you, Peter. I think that there's a lot to be done in credit secondaries, particularly for someone probably like yourself who's invested in secondaries before, so understands that dynamic, but also understands the credit markets. So I'd like to hear that. And as private markets continue to grow in importance in general, the conversation seems to have shifted from why investors should be invested to how they can access the asset class efficiently. So evergreen structures are a structure that has emerged as a key solution, especially for private wealth investors. And EQT has developed three different evergreen structures in the U.S. would you please elaborate on the rationale behind them and how they serve both private wealth and institutional investors?

 

Peter Aliprantis [00:08:23]:

And that's I think that both of those questions are very important. And the first thing I would say is that evergreen structures are not all created equal. And I think it's important for investors to understand that. And in all of the discussions that we have with advisors, they ask about the evergreen structures and they ask the same questions that you're asking today, which are why did you decide to offer evergreen structures versus your more traditional drawdown structures? And what are the benefits of those structures to individual investors? And what comes out in all of those conversations is individual investors want to understand how we invest in those evergreens. And so when you look at our current roster of evergreens, we have a REIT as well as a private equity operating company or an OPCO as well as an infrastructure operating company. Those are the three evergreens that we have. And what's very interesting also is when we talk to our largest distribution partners, what they tell us in large part is that they are raising more money from investors in the evergreen structures than they are in traditional drawdown structures. And that really started that.

 

Peter Aliprantis [00:09:38]:

That trend really started probably about a year or two ago. So it's a relatively new trend. And so if you are a GP like EQT, you really have to participate in the evergreen markets if you want to raise capital in, in the private wealth segment. But what I would say that is very important and is very much top of mind with investors is what goes into those evergreens. And for us, what's very important is that there is no separate origination team or deal team that originates deals for the evergreens than there is for our drawdown structures. So what that basically means is that for the most part, the same deals that are invested in our drawdown structures, that get invested by our top sovereign wealth fund investors and our institutional clients are the same deals that go into our evergreen structures that ultimately get that are invested by private wealth investors as well as institutional investors. And that's really important because you don't want. You're coming to a firm like EQT and you're looking at us as is, and we've got a significant size and scale.

 

Peter Aliprantis [00:10:49]:

You don't want to have a separate origination business. You want to have the same deal flow that's going into your evergreens. So that's really important. The other thing I think that's very important is that for investors that have very low allocations to private markets, evergreens are a much easier way to invest. They don't have to deal with capital calls. There isn't really a J curve. And it's a much smoother process of investing. The the other thing that you bring up is very important because we see this as well, is that evergreens are also getting a significant amount of investment interest from small to mid size endowments, pensions and the like because some of them have fairly limited investment teams.

 

Peter Aliprantis [00:11:31]:

And so every 12, if they're working with multiple GPS and every call it 12 to 18 months, those GPS are coming out with another drawdown vehicle. They have to re underwrite those structures. They need to go through the whole E process, which is the operational due diligence process as well as the investment due diligence process. And a lot of those firms are looking at the evergreens and saying, hey, if it's the same deal flow managed roughly by the same people in the same strategy and there's no difference, why don't I just invest in the evergreen? And that way it's also much easier for me to make allocations. So we definitely see that as a trend and I think that's going to continue. The other thing I would say, and I mentioned this briefly, but the OPCO structure is a very interesting structure and you really can't do it unless you have significant size and scale. And that's why there are very few options like that out there today. There aren't many firms that have the size and scale that EQT has to be able to offer.

 

Peter Aliprantis [00:12:27]:

That both on the private equity side and on the infrastructure side resonates with

 

Chris Sparenberg [00:12:33]:

a lot of panel discussions I've been part of and even client conversations that there is this dual movement toward embracing evergreens at both the wealth and that small to mid size allocator tier for precisely the reasons you described. Another trend that's resonating a lot that I think has a lot in common with EQT strategy is key themes like energy infrastructure and powering the AI revolution that we're seeing happening across private capital now. While you prefer not to focus on a single investment, can you discuss how EQT identifies and capitalizes on these broader secular trends to drive value across the portfolio?

 

Peter Aliprantis [00:13:14]:

Yeah, and I can talk about some of the underlying portfolio companies that we've publicly spoken about, so those I can focus on. But those themes, quite frankly come up in every single conversation that we have today. Power, energy, infrastructure, and the firm EQT is very focused on that. In fact, about two months ago, all of the partners, we all went to Silicon Valley and we met with some of the top AI companies out there and it was really impressive. And the reason we went was Twofold really, because we want to be able to utilize AI, which we're currently doing at EQT at the firm level. But in addition to that, we want to be able to make sure that our underlying portfolio companies are utilizing AI to create value and build value within their underlying businesses. So it really was a twofold kind of trick. It was to make sure we're utilizing AI at the firm level, but also to make sure our underlying portfolio companies are utilizing AI.

 

Peter Aliprantis [00:14:11]:

But AI is a structural force reshaping every asset class. And EQT is uniquely well positioned to drive positive outcomes in that space. And again I go back to this consistently, but as a global presence, whether it's pe, infrastructure, real estate and now ultimately secondaries, those businesses really allow us to identify and capitalize on these long term trends. So as an example, EQT has more than $100 billion in digital and energy infrastructure assets. And that gives us a real rare ability to offer end to end AI infra solutions across compute, power, connectivity. And all of that stuff is driving outsized growth and market share for us. So I will talk about two specific companies that we have in our portfolio. One is a company called EdgeConneX and it's one of the largest data center, or I should say built to suit global data centers in the world.

 

Peter Aliprantis [00:15:11]:

And it houses cloud content and network technology. And they have roughly 90 data centers worldwide in North America, EMEA, APAC and South America, 20 plus countries. And they are built to suit. So if you are a hyperscaler and you're looking to build a data center, EdgeConneX would be one of those companies that you would call and say, hey, we need you to secure the land, we need you to secure the power, we need you to build the infrastructure for us. And that leads me to the next investment which is a company called Scale Microgrids. So what Scale does is provides microgrid power or on site power, end to end provider of distributed energy and microgrid solutions. So let's say you wanted to build a data center and let's say we wanted to put it in, I'll pick a space. Columbus, Ohio and we needed 250 megawatts of power.

 

Peter Aliprantis [00:16:05]:

We would have to go to the local utility file with that utility and say okay, we want to get on the grid, we need 250megawatts of power. The utility would probably say okay, great, thank you very much. We're going to put you on the wait list. It's going to take, I don't know, one, three, five years to put you online. Most of the folks that we work with are not going to sit around and twiddle their thumbs for the next three to five years. So what they'll do is they'll work with scale. And scale will co locate power on site on the data center. So you can see how there's real connectivity between what Edge connects does in building the data centers and what scale does in terms of co locating power for the data center.

 

Peter Aliprantis [00:16:44]:

And the way scale does it will be a combination of solar battery power and potentially natural gas. So that when you go and you power your data center, you're not 100% committed to the grid. And that is quite frankly the one of the largest constraints, if not the largest constraint to most of these hyperscalers in their buildout of AI, which is power. And so I think going back to the EQT kind of fabric, having multiple portfolio companies that operate in tandem like that gives us a significant advantage, I think over, over a lot of our competitors. And in fact, Scale wrote a fabulous white paper called Bring Your Own Power, which is on their website, which I highly recommend. If you're interested in this space, and I am, I get overly passionate about it. I think it really is a cutting edge solution to the future and it is fantastic. And interestingly enough, interesting data point that scale actually provided on site energy systems to the Olympics in Lake Placid back in the 1980s and also to the Macy's Thanksgiving Day Parade in New York City.

 

Peter Aliprantis [00:17:52]:

So they've been doing this for quite some time. This is not a new thing for them.

 

Jocelyn Lewis [00:17:56]:

That's really interesting and I'm actually curious about the white paper and learning a bit more. Peter, one of the things when you were talking through those examples that I was wondering is in a lot of private equity seems to have this strategy of buying businesses, finding synergies, perhaps merging them together. So when you were talking through this example, it sounded like that was somewhat of the strategy with these businesses. But I was wondering, when you initially bought the businesses, was that your view for them?

 

Peter Aliprantis [00:18:36]:

It's a great question. And I would say I don't specifically know, I'm not on the investment team, but I don't think that was the idea because they were bought at two different, different times in our investment landscape. And but what happens is today the markets are moving very quickly and so our investment teams are always scanning the horizon to find companies that can ultimately work together. But it's not a necessity. But if it works out that way it would be great. But I think you're right. I think a lot of firms like ours are looking for companies that can work together together and provide solutions for each other. But remember, these companies are also independent companies that operate independently of each other and they're not necessarily interconnected in a way.

 

Peter Aliprantis [00:19:22]:

I think at the onset of the purchase of either of these companies, did we foresee this? I think it's just the way the market's played out.

 

Jocelyn Lewis [00:19:29]:

It's a great way to add value though, because you can definitely see how they can work separately and also be very powerful, pun intended.

 

Peter Aliprantis [00:19:37]:

Together for sure. Absolutely. And the other thing that's really interesting because we get asked this question a lot, it's what role does nuclear power have to play in all of this? And I'm sure we've all seen the deals that Microsoft, I think struck with the form with Constellation Energy or one of the Three Mile island power plants and they are going to source that exclusively for their energy AI compute business. And you're seeing more and more of that come online. And you're also seeing the development of small modular reactors which ultimately now the technology is five to ten years away arguably. And then when that gets developed, once the technology is developed, you're also going to have concern around the government getting involved because if, if one of the large hyperscalers decides that they want to power their data center with nuclear power, obviously that's going to be, have to be regulated. So this is a, I think this is a long way away. But these are all, there's a lot of folks out there today that are trying to find solutions to the SMR technology to power nuclear going forward.

 

Peter Aliprantis [00:20:40]:

But I think that's a long shot. But that comes up in a lot of our discussions as well. Very interesting times, that is for sure.

 

Jocelyn Lewis [00:20:48]:

Peter, you've highlighted several key themes throughout this conversation today, from the growing importance of private markets and global diversification to the opportunities emerging in evergreen structures secondaries in long term secular trends like energy infrastructure and AI. So I'd like to bring all of these ideas together and with the dynamic global environment, what advice would you give to financial advisors or investors looking to increase their exposure to the private markets, especially considering the global diversification and evergreen opportunities that EQT offers?

 

Peter Aliprantis [00:21:31]:

Yeah, and that's a great question. And as you can imagine, my primary advice would be to recognize the shrinking universe of public companies and we talked about that earlier in the discussion and really the necessity of gaining exposure to the private markets to access a significant part of the global economy. Those numbers that we talked about earlier, 90% of the companies with $100 million in revenue in the US are private, 95% in EMEA and 80 to 85% in APAC. And again, I want to emphasize, I feel that if you're not looking for exposure in those diverse regions and private companies, you're really missing out on a tremendous opportunity for your investors. And I think one of the things that we hear a lot also especially about investing in, in, in emea, is in the public markets. The European public markets over the last 10 to 15 years have lagged the US markets. And that's true. But if you look at the private markets in EMEA versus the US Markets, that is not true.

 

Peter Aliprantis [00:22:35]:

If you look at the track record of the top tier private markets firms in EMEA and in apac, we certainly would say that they have been very strong results. And then actively seek diversification and exposure outside the US as global markets offer unique opportunities in all of these different segments, whether it's private equity, real estate, infrastructure or secondaries. And then we spent a fair amount of time talking about evergreen structures. I think individual investors as well as institutions should think about evergreen structures for managing their private market allocations as they may provide some smoother cash flows and definitely reduce the administrative burden of constant re underwriting and dealing with capital calls. And what do I do with that cash when it's not, when it's not being invested directly in the fund? Where do I put that? Do I put that in the S and P? Do I put it in a money market fund? How do I manage that cash component? And then we also talked about this. I think it's important to look for investment partners with the size and scale to be able to offer consistent high quality deal flow across various asset classes and geographic regions, which would ensure that private wealth clients get the same access and the same caliber of investments as their institutional counterparts. And then last I think I would say you really got to keep an eye on the secondaries markets and particularly credit secondaries because it really represents a compelling opportunity for growth in the coming years. And it's one of the reasons why we added it to, to equities arsenal and really is the fourth leg of our stool because it's, as I mentioned earlier, the private equity piece only represent represents about 2 to 3% of the overall private equity deal flow in the market.

 

Peter Aliprantis [00:24:22]:

And if you think about that's got a long opportunity for growth. And I think those are the things that I would emphasize with advisors or institutional investors, quite frankly, as they're thinking about their allocations to private markets.

 

Jocelyn [00:24:34]:

Lots for them to think about, indeed, in a big market. Thank you for joining us for this episode of Private Markets 360, where we were delighted to have Peter Aliprantis from EQT share his expertise with us. Peter provided invaluable insights into EQT global strategy, its significant role in private markets as one of the world's largest private equity firms, and and how its innovative evergreen structures are making private markets more accessible for both private wealth and institutional investors. He also highlighted the critical importance of global diversification and the growing opportunity in the secondaries market. We hope you found this conversation as informative and engaging as we did. Please be sure to subscribe to Private Markets 360 for more expert insights and the latest trends in private investments. Until next time.