75% of the great companies aren’t listed. Here’s how you can access them

Let's face it, whatever asset class you're into, we're all chasing opportunity and return. 

Yes, we want to feel good about our investments these days and we like to understand what we are investing in but without opportunity and return, it's usually a non-starter.

It's for these reasons that Peter Beske Nielsen from EQT Partners believes the already strong interest in private equity will continue to grow. 

"So if you're not considering investments outside the listed markets, you're missing out on a very, very large proportion of the opportunity set," Nielsen tells me.

Sweden's EQT Partners has around $370 billion of assets under management, making it one of the biggest private equity managers in the world. EQT is launching in Australia, via EQT Nexus, which has an Australian unit trust. The fund is also hedged for the Australian dollar, making it specifically targeted at Australian investors.

The vehicle will raise capital and invest it into underlying private equity funds covering buyouts, infrastructure, and co-investments in its stable’s deals.  

In the following interview, as part of Livewire's Alternatives in Focus series, Nielsen explains how private equity continues to open up for retail investors, why the returns have been good and whether it can continue, as well as the sectors and companies EQT are targeting right now. 

Edited Transcript

David Thornton: Hello and welcome to this Q&A brought to you as part of Livewire's Alternatives in Focus series. I'm your host, David Thornton. Today, we're lucky enough to be joined by Peter Nielsen, Partner and Global Head of Wealth at EQT Partners, to discuss why now it might be the right time to pivot towards private markets. Peter, welcome.

Peter Nielsen: Thank you very much, David. Thanks for having me.

David Thornton: Private equity is gaining a lot of momentum at the moment but for a lot of investors it's still very opaque. Why should investors consider private markets?

Peter Nielsen: So I think you are rightly saying it's right now, but I actually think you should have a longer-term view. So you should have considered private markets for some time, actually. And why is that? 

If you step back and look at the context, there are about 140,000 companies that have a revenue above $100 million. There are only 19,000 listed companies globally. So, really, if you're not considering investments outside the listed markets, you're missing out on a very, very large proportion of the opportunity set.

So that's one of the reasons I would mention as a starting point. And then of course, also, the returns. So, if you look at, broadly speaking, the returns in private equity, if I look at 40-year period from 1981 up until 2021,  the private markets US buyout index has returned just under 17%, whereas the S&P 500 has returned about 10%. So that's quite a gap.

David Thornton: Are companies staying private for longer, companies that otherwise might have listed in the past?

Peter Nielsen: I think it's difficult to give full evidence but if you look again at data, it's always good to have some data points. 

In the US, the stock market peaked in 1997. Ever since, it's slightly been declining. So the number of listed companies has gone down. And why is that? That's partly because it's not as attractive to IPO but also maybe not as attractive to stay on the listed market. 

So you're absolutely right, it's just companies stay out of the tight regulation and governance for longer.

David Thornton: You mentioned before the 17% return thereabouts you can get in private markets. How consistent have those returns been historically?

Peter Nielsen: They have been quite consistent over the various cycles we've experienced over the last 30 years, but clearly - and I think this is important to mention - there are, just like in the public markets, there are private equity managers that are doing very well and there are some that are doing less well. 

Actually, I think in private markets the dispersion between the managers that do well and the ones that do not so well is quite large. You've got to be very careful about who you invest with.

David Thornton: One of the big concerns in private markets at the moment is revaluations. Is this affecting EQT? And if so, how are you working to mitigate that risk?

Peter Nielsen: No one is immune to what's happening at the macro level. And debt markets of course also play a big role here. 

At EQT, what we've been doing for many, many years, we've had a sector focus. That means really trying to invest in companies that are non-cyclical. i.e., companies that don't really perform good or bad in cycles. 

So what are they? Healthcare. A good example may be Icon Group down here in this region, providing cancer care. It's really not cyclical. There's always, unfortunately, a need for that type of care. 

And the same goes for the infrastructure side. If you are in companies producing electricity. That's in high demand, so therefore that's not really feeling the macro levels that we see today, or the changes in the macro levels.

David Thornton: Private markets have traditionally been the domain of institutional investors and family wealth offices. Is that changing and what opportunities are there now for retail investors?

Peter Nielsen: I would say, unfortunately, you are right. That has been the case. And why is that? 

That's because most private equity providers, including ourselves, for a long time, have only granted access to institutional investors. So large tickets, basically (i.e. large investments). 

That's really what is changing. We have seen and heard from a lot of the wealth advisors that, can we help overcome these large ticket items? 

Also on the liquidity side, if you sign a commitment, you are bound for 10-12 years. And we thought about that for a long time. 

It's taken us three years to come up with solutions that help investors. So you can get in at a lower rate and you can also get out periodically instead of being closed in for 10 years.

David Thornton: Globally there's a lot of dry powder at the moment within private equity. Are there opportunities to put that capital to work right now, and where are you seeing those opportunities?

Peter Nielsen: Yeah, there definitely is. 

We tend to invest in good companies and make them great. What we call future-proofing the companies in sectors that are more non-cyclical. 

But if you look at the markets today, there are great opportunities, and we've taken advantage of that, to take companies that are listed and take them private. So that's a great opportunity right now when markets are a bit more muted than they are today.

David Thornton: So what kind of sectors and companies are you targeting at the moment?

Peter Nielsen: As I mentioned, healthcare is one of them. There is certainly also digitisation, technology, and the whole electrification side of things that we pay close attention to.

David Thornton: Just to round it out, tell us about the new fund for EQT. What kind of investors are you targeting, and what's it all about?

Peter Nielsen: If you think about it, wealth creation morphs and it will morph in the next 20 years towards the individual investor. 

Everything, if you think about state pension or your work pension, yes, it will still exist, but it's probably decreasing, which means you as an individual have to save more. So we have to make sure that private market investments are made available for the private individual. 

When you think about your retirement and you want good returns on your investment portfolio, that's what we are looking for. 

So that's why we are creating vehicles like the one we've created now, which has a bit of liquidity as well, that can basically cater to the demands of the private individual. These are super exciting times.

David Thornton: Tell us more about that liquidity risk. Of course, that liquidity risk comes with liquidity premium that investors can expect. How should investors think about liquidity as it pertains to private markets?

Peter Nielsen: Historically you have locked up your money for a period of between 10-12 years. 

Now, with vehicles like the one we're bringing to market, you should think shorter horizon, but not really short-term. You should always think about your asset allocation. You have a liquid portfolio if you have a need, like if a birthday is coming up, a wedding, children are coming around, but there's a portion of your investment, maybe that's 5, 10, 15%, that you can put away for longer. 

I would say, for a product like ours, you should really have a view that is at least three to five years.

David Thornton: It's been a great chat. Thank you for joining us, Peter.

Peter Nielsen: Thank you for having me, David.

One of Europe's largest private equity firms

EQT Nexus provides wholesale and professional investors with access to an institutional-grade portfolio of private assets with quarterly liquidity, a unique offering in the Australian market.

Find out more about EQT Nexus here.