Private equity group EQT is considering charging institutional investors more to put money into its deals, as an influx of money from wealthy individuals makes it less reliant on funds from traditional backers.
The Swedish firm is exploring imposing charges on some institutional clients when they invest alongside its funds in deals, ending a free perk that it has historically given to its core investors.
Private equity groups have long dolled out free so-called co-investments as a sweetener to pension funds and endowments that provided the bulk of private equity’s funding. But the potential change to EQT’s offering is the latest sign that retail money gushing into the sector is upending its traditional economics.
“When it comes to our co-invest deal flow . . . there is an opportunity to monetise this . . . more as we are growing with our private wealth and retail clients,” Per Franzén, chief executive of EQT, told analysts on a recent call, adding that the firm generated €17bn worth of co-investments in the last year.
On the chance to generate revenue from the chunk of that offered to institutions, he added: “What we have discussed in the executive leadership team and also with the board is that this is a huge growth opportunity for us.”
The potential change underlines that the institutions that have long been private equity’s biggest supporters are becoming less valuable as the largest private capital firms roll out newly popular types of funds designed to suit wealthy people.
“This is one of the most existential risks facing us,” said the head of private equity at one large US pension fund, referring to the rise of retail vehicles. “This whole new pool of capital that’s huge . . . is going to diminish our importance in the ecosystem.”
Other large private equity firms have also recently considered charging some institutions for co-investments, as the flow of fees from wealthy people lessens the need to offer free co-investment opportunities to other clients, according to people in the industry. Some firms have already charged institutions transaction fees on co-investments, one said.
EQT, which manages €267bn in assets, launched two vehicles called Nexus for individual investors starting in 2023 that together manage €1.9bn in assets.
The vehicles commit alongside institutions to EQT’s flagship private equity and infrastructure funds, as well as deploying 20 to 50 per cent of their capital directly in portfolio companies alongside those funds. Unlike institutions, investors in the retail vehicles pay fees on such co-investments.
Franzén said the Stockholm-listed manager would continue to offer institutions “the most attractive” access to co-investment opportunities.
“However, just given the deal engine that we have today, we feel very, very good about our ability to create a win-win-win, if you will, between those two client segments as well as EQT.”
Earlier this month the influential trade body representing large private equity backers warned of the numerous risks to its members from retail funds, from conflicts of interest at firms to the potential undermining of wider industry performance.
