In 1989, one of Europe’s great industrial families, the Wallenbergs, sent a young Swedish executive called Conni Jonsson to the US to see how Wall Street worked.
His arrival coincided with the apex of the first leveraged buyout boom, when a small group of corporate raiders made fortunes buying well-known public companies in massive, debt-funded deals.
“The big thing that happened then was RJR Nabisco,” Jonsson said in an interview with the Financial Times, referring to the era-defining takeover by US private equity giant KKR immortalised in the book Barbarians at the Gate. “That caught my attention.”
Jonsson took the idea of launching a European version back to his billionaire employers, the Wallenbergs.
They were sceptical. With a fortune originally made in banking in the mid-19th century, the aggressive, buccaneering approach of the early buyout groups was anathema to their way of doing business: one focused on good corporate governance and an aversion to risk-taking.
“When we were able to convince Peter Wallenberg to do this, he was a bit nervous,” Jonsson said.
Now EQT Partners, the group he co-founded with the Wallenbergs’ backing, has minted at least half a dozen billionaires, manages more than €230bn in assets, and in February raised €22bn for its latest flagship private equity fund, one of the largest buyout funds of all time.
“Nobody could have seen exactly how big this would become,” said Marcus Wallenberg, who together with other family members is the public face of the Swedish dynasty.
EQT’s expansion from a niche player focused on buying small Swedish businesses to an investment empire spanning three continents tracks the growing influence private equity firms have come to exert over the global economy.
The group’s rapid growth since going public also provides a blueprint for European peers including CVC Capital Partners, whose senior executives have looked on with envy at their rival’s expansion turbocharged by the capital markets. CVC is expected to go public as soon as next week.
But the industry is facing an existential moment: groups including EQT are sitting on more than $3tn of unsold assets, deals done in a different economic climate. Calls are also growing for private equity to share its spoils with workers, as well as increasing regulatory scrutiny of the $13tn asset class.
The early role the Wallenbergs played at EQT — short for equity — was fundamental. They delivered access to a host of US power-players spanning politics and finance thanks to a relationship with US private equity firm AEA.
“[The Wallenbergs] allowed us to travel the world with their business card as long as we behaved ourselves,” Jonsson said.
The downside was EQT had to “follow their way of doing business, which in the early days was very different from how private equity did business,” Jonsson said. “For a while we thought it was a handicap.”
Over time, the Wallenbergs’ conservative ownership style, as well as their network of contacts, became a key part of EQT’s pitch to companies it wanted to buy. “There wasn’t an obsession with leverage like there was in the US,” said Mark Florman, chair of Time Partners, which advises investors in EQT.
But despite the links to some of Sweden’s most influential industrialists, EQT drew flak from politicians and tax authorities.
EQT’s former CEO said in an interview with an academic that the prime minister of Sweden accused it of “selling children on the stock market” because of its ownership of a business that ran schools across northern Europe. Meanwhile, a challenge over the tax due on historic deals drove EQT to move its operations back onshore under a single umbrella company based in Sweden.
By the time Jonsson stepped down as managing partner in 2014, the group had accumulated about €13bn in fee-earning assets under management and expanded into new areas such as infrastructure. But despite EQT’s growth, in the post-financial crisis private equity boom era, others were doing better.
“We saw some of our competitors outgrowing us and outmanoeuvring us because they had access to capital,” said Christian Sinding, a longtime EQT employee who has served as chief executive for the past five years. “It was the US players.”
Starting in 2008, US heavyweights such as Blackstone, KKR and Apollo Global Management had all gone public, giving them balance sheets to seed new strategies and to buy competitors in fast-growing areas such as life sciences and insurance.
The decision to follow suit in 2019 caused tension within EQT. “There were some naysayers,” Sinding said. “They were worried about culture and values. Would we let ourselves be steered by the public markets rather than by our convictions?”
The listing in September that year vaulted at least six EQT executives including Sinding and Jonsson into the ranks of private equity billionaires alongside Blackstone’s Stephen Schwarzman and KKR’s Henry Kravis, the same dealmakers that Jonsson had sought to emulate decades before.
“This team has been very good in understanding that you have to live with the times,” Wallenberg said. At the time, EQT had roughly €36bn in fee-earning assets under management, a figure which had grown more than three-fold to €130bn by the end of last year.
The listing gave EQT currency to buy up other investment businesses, including US real estate firm Exeter Property Group and Barings Private Equity Asia. But it also came only two years before the end of the long private equity bull market, which has left EQT sitting on some large assets bought during the boom.
These include German ecommerce company Zooplus which it took private in a €3.7bn deal at a valuation of 58 times earnings in 2021. EQT also has billions of dollars tied up in vet business IVC Evidensia, a sector which regulators are now investigating.
Cashing out of these large bets is proving tricky at a time when the industry is adapting to higher interest rates. There are also questions over what effect growing assets under management will have on performance.
Florman said: “There is the risk that when your assets under management become too big, you fall into the mature category and the energy and the edginess can go away.”
The company’s share price is down more than a third from its November 2021 peak.
Many of its publicly traded peers, aware of the need to continue increasing assets under management, have built large credit businesses over the past decade or so.
Private credit has been a big beneficiary of higher interest rates and is also easier to scale than investment strategies such as private equity, infrastructure or real estate, investors say. In 2020, EQT sold its credit business to rival Bridgepoint.
“If we were to listen to every analyst, we would be having a big credit business and making ourselves look like everybody else,” Sinding said. “Every week for the last 18 months, bankers and consultants have been saying credit, credit, credit.”
But Sinding is clear what he wants. “We don’t want to be everyone else, we want to be EQT,” he said.
