LP Profile: EQ Asset Management

Finnish asset manager EQ Asset Management has a long track record of investing in private equity, making its first fund commitment in 1994, before raising its first European fund in 2002. Today, the organisation functions as a fund-of-funds, investing in both Europe and the US, while it also manages separate accounts on behalf of large Finnish institutions.

The Helsinki-based manager, with more than €7bn in private equity assets under management, targets opportunities in buyouts, growth capital and private credit. The firm invests between €300-400m annually, mostly in the European and US lower-mid-market, but it also deploys in the upper-mid-market through separately managed accounts.

Around 93% of the organisation's clients come from Finland. The client base consists of 200 investors, and the organisation manages 20 funds-of-funds and client portfolios. 

In terms of targeted regions, EQ invests in northern Europe, a market that the organisation has covered for more than 20 years. "We have a strong focus on the Nordic, UK, German-speaking and Benelux regions," says Staffan Jåfs, EQ's head of PE. "We believe that these markets have strong economic positions, and private equity is well recognised in northern Europe. Also, there are lots of small enterprises that are privately held in the region, which makes the market dynamic and compelling from an investment point of view."

EQ's European portfolio consists of 70% primary and 30% secondaries. The average ticket for primaries in the lower-mid-market is €15-20m. The US portfolio, meanwhile, is solely dedicated to primary fund commitments. EQ works with Chicago-based RCP Advisors for its US private equity investments.

When searching for a new manager, the investment decision is based on three pillars: team, track record and strategy. Realised track record accounts for two thirds of the weighting, and the organisation analyses how the manager compares with its peers, but also to its own vintage, as well as unrealised performance versus the original investment case.

EQ is open to first-time funds, but not first-time managers, says Jåfs: "There is a distinction between a spinout from a large organisation, or a group of people with a strong personal track record forming a new franchise, and a new firm that does not have a track record. If it is a spinout, it is something that we would look at. But if it is a new firm, then we could keep an eye on them to see how they develop, and invest with them once they have proven themselves." 

The organisation also avoids investments in mega-buyouts, mezzanine and venture capital. "We used to have investments in venture capital until 2005, but it is a very concentrated GP universe in terms of performance. It is very difficult to assess and understand the drivers of portfolio returns. It is much easier in the buyouts space," says Jåfs. The organisation does co-investments, typically on an opportunistic basis. 

"We incorporate ESG systematically throughout our private equity investment process, including fund selection, portfolio management, reporting and communication," says Jåfs. "The investment team, together with EQ's ESG director, are responsible for the process and its development. We believe that ESG analysis and development cannot be outsourced. EQ continuously monitors the portfolio funds and actively promotes the development of ESG performance."

Busy pipeline
The firm is planning to launch two funds-of-funds in 2020: one focusing on European primaries and another on the secondaries market. The first close for EQ's new funds are expected in January 2020, and fundraising will continue during the spring.

The EQ PE XII North fund has a target size of €200m and is set to invest across country-focused funds, along with sector funds and special situations/turnaround funds in northern Europe that are below €500m in size. The manager is also fundraising for EQ PE SF III, a secondary vehicle with a €150m target size. It focuses on portfolio acquisitions in the secondary market, and also backs GP-led transactions and continuation funds.

Around two thirds of the capital committed to both funds is expected to come from existing LPs, while the remainder is expected from new LPs. The investors are based in Europe and the US. EQ is also planning to launch a US-focused private equity fund in 2021, and one in Europe in 2022.

The firm is also looking for opportunities in the private credit space, and has recently raised a second credit fund, following its maiden commitment to private credit in 2017. EQ Private Credit II and EQ Private Credit invest in debt capital instruments issued by private equity sponsored European unlisted companies. The organisation is planning to deploy €50-100m in private credit during 2020.

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