- 2 weeks ago
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00:00Connie Johnson, everybody.
00:06My name is Kreeti. Thank you guys so much for having me.
00:09I've just spent 30 minutes picking Connie's brain
00:12and deciding how to synthesize that in a short amount of time.
00:16And I think you can see the panic on his face of what I'm about to ask him.
00:20Connie, let's start big picture and then we'll dive into the details.
00:24How are you thinking about the world right now?
00:26The world is exciting.
00:28But it's not that different from other crises we've had or turbulent times.
00:35So I'm pretty much at ease with what we have and how we operate.
00:41The fact that we're globalists is very helpful.
00:44We can put money to work where we think it makes sense
00:46and pick the sectors we like.
00:50So I'm actually pretty fun.
00:51I'm getting easily bored if things doesn't change.
00:55And it doesn't change now.
00:58We have that in common.
01:00But you seem more optimistic than most at the moment.
01:03Most people panic at change, at volatility, at uncertainty.
01:08You don't have this problem?
01:10No, I think we have...
01:12Well, there's example number one.
01:14I think we have a good machinery.
01:18We have a well-oiled machinery to manage the challenges.
01:23We are fine with how the market functions.
01:25We can sell things that we are ready with that is good quality, a good deal flow.
01:31We like the sectors we invest in.
01:33I also like the fact that we are global, like Sean has talked to us about here today.
01:40That means that we can put our resources and our attention to where we think it makes most sense,
01:45where we can make most return for investors.
01:46I might be a bit more concerned about the private equity market in general as an industry.
01:52Well, tell us more.
01:53What keeps you up at night?
01:54Well, I think that, you know, the industry is trying to do so many things.
01:59So I think we might not put enough of emphasis or priorities on why we are here.
02:03We are here to deliver good return to our investors and doing so in a responsible manner.
02:10But we are running around doing a lot of other things now, meaning that maybe the focus on return isn't there,
02:17and that's bad for the industry.
02:19Do you feel like, given...
02:21I'm going to marry the two topics we just talked about together.
02:23Do you feel that the increase in the volatility, the emphasis on having liquid assets that you can very quickly move,
02:30has changed just how attractive private equity is as an industry, given how attractive it was, say, two, three years ago?
02:40Yeah.
02:41Well, if you have a good tailwind, interest rates are low, multiples are high,
02:48then you can sort of do good investments and create a good return without working a lot with it.
02:55Today, you need to be able to make a difference in what you do.
02:58And I think, you know, you can see it as something bad, but I think it's something good,
03:03because that will also tell the winners from the not-so-successful firms.
03:09But I will say, most of our long-term investors, they are not short-term.
03:13They are not concerned about liquidity.
03:15They rather like us to manage their great assets for long.
03:20They're more concerned about sort of buying and selling and M&A here, M&A there, and a new fundraiser.
03:26So, you know, so a lot of the capital that we're actually looking at being our long-term partner capital,
03:32they are not concerned about the problem that the exit market isn't that hot,
03:37because they have a long-term view.
03:39They have a very diversified program.
03:40And so it's more sort of what you read about the newspapers and somebody that has just a new started program
03:47or doesn't have the resources to build up the competence to invest in this space,
03:53because it requires a lot from our investors to become a good investor in private equity.
04:00Let's take that piece by piece.
04:01You mentioned that most of your shareholders are long-term investors.
04:05What about the short-term ones that are worried about the deal glut that the industry is seeing?
04:10Yeah, but that's not our problem.
04:13If we can find enough money, and we have the difference between shareholders and investors.
04:17Shareholders, they can buy and sell the shares every day.
04:20The investors, they make long-term commitments.
04:22And the ones that really look for the return that we have been able to deliver in the past
04:26and will be able to deliver in the future, they have a long-term approach.
04:30So they shouldn't invest in this space.
04:33They shouldn't invest in his space to trade in and out.
04:36Then they can do that in the stock market or with hedge funds or other things.
04:39But I think what we are here to do is to deliver long-term return for our investors.
04:43So, Connie, you mentioned, though, that the deal market isn't so hot.
04:46When do you think it will be hot again?
04:48Well, I don't know.
04:50Fair enough.
04:51Anybody with a good crystal ball here?
04:52Well, given the long-term strategy and the volatility and a lot of that emanating from geopolitics
04:59and the policy coming out of Washington, has that changed EQT's strategy at all?
05:05It hasn't changed the strategy, but it has been rather favorable for us,
05:11not being based in the U.S. and being a U.S. firm.
05:15Because the ones we're competing with is almost exclusively the U.S. firms right now.
05:20And they are having some headwinds out in the world for reasons caused by others than themselves.
05:27And the flip side of that is that people are looking more for managers that are not based in the U.S.
05:33and maybe to deploy money with GPs that is not U.S.-based or U.S.-dollar-denominated.
05:40So it has benefited us, especially in Asia, but I would say also in Europe to some extent.
05:45What do you say to global investors that are looking to invest in Europe
05:49are saying, give me a reason, Connie, give me a reason that Europe will suddenly wake up
05:55and catch up to the rest of the world?
05:57Is there a reason to be optimistic here?
05:59Well, Europe would never have been able to get organized without getting pressure from somewhere.
06:05And now we got pressure from the U.S., and now we are trying to get organized.
06:08So it's clearly so that the understanding of the necessity of change is there.
06:15And now we are waiting to see the actions.
06:19We see some signs, but there are so many things that needs to change
06:23to get Europe back to a position of competitiveness.
06:26And it's talked about, and everybody travels around, meets, and discuss these kinds of things.
06:34But it has to be proven that we also can get into action
06:40and create the right regimes, regulations, allow us to consolidation.
06:46We need to have one common capital market.
06:48We need to have a handful of strong, big, successful European banks.
06:53Basically, we have maybe one today in Europe.
06:57Those things need to be put in place, and they need to be put in place by the politicians, unfortunately.
07:03And that, of course, is a bit scary, but we are hopeful that we will get there.
07:08And we are helping them.
07:09We are participating in the dialogue around that.
07:12Well, as you say, Europe is famous for acting when there is a crisis.
07:16But we've been talking about the capital markets union for 10, 20 years, maybe.
07:20Is it on the horizon, do you think?
07:23It's discussed.
07:26I think the bank consultation will come first.
07:31There are so many things happening on the continent between Italy and France and Germany,
07:36and the politicians and unions are still resisting, but it's heavily discussed.
07:43I spend a lot of my time in Italy, and you know what happens in the Italian banking market.
07:48It's a complete civil war, and that leads to consultation, and that leads then hopefully to spreading that gospel to other markets as well.
07:58So the equity capital market is easier because that could be decided in Brussels.
08:03When we talk about, I'm going to put Italy to the side for a second and talk about Germany instead,
08:09because the antithesis to some of the trade concerns and the volatility emanating from D.C.
08:16is that, well, it's okay because Germany is about to unleash all of this fiscal spend over the next 10 years in defense, in infrastructure.
08:23How does that help or hurt private equity?
08:27Well, it becomes a lot of investment opportunities there in those spaces, and Germany is sort of the engine of Europe,
08:36even though we keep denying that, but it is economically, and we all follow what Germany does.
08:42France is trying to balance it a bit, the rest of us, as we are following.
08:46So I think if it leads to economic development, which it should lead to, it should be beneficial for us as well.
08:53I think the issue is maybe more on the private sector, you know, the startups, the companies that need to have expertise to grow.
09:02The early clusters that is a requirement to get a lot of entrepreneurs to be funded, and new companies, new technology.
09:10I hate that Spotify is listed like in New York.
09:13You know, why?
09:14Give me a good reason.
09:16Yes, because we haven't been able to deliver a good enough alternative to that, but that's sort of one example.
09:23And also, I looked at the number of successful IPOs in Europe the last 20, I think it was 20 years.
09:29I think we have had 24 companies today, not 14 companies today, that is worth more than 10 billion euro listed.
09:38Out of those 14, five is from Sweden.
09:40And in the US, I've had 250 companies listed and being of that size in the same time frame.
09:48And that needs to get fixed.
09:50We need to create a different solid base in Europe for development.
09:55Well, you're not alone in saying that.
09:57And a lot of your American peers, I'm thinking KKR, Apollo, among many, many others, have swooped in to a lot of those deals in Europe.
10:06I think infrastructure deals in Europe have been the hottest thing in the last one or two years.
10:11How long do you think that lasts?
10:12Is there a believability question when it comes to how long it will take for that fiscal spend to actually echo through the markets?
10:19Or through the economy, I should say.
10:21Yeah.
10:21I think, you know, the American firms, they're very fast to move, but they're also very fast to move out.
10:28Germany, when we went to Germany 15 years ago, Germany was the hottest place in Europe.
10:34And then, sort of, five years later, it was like a bath club.
10:42You know, there was only towers left.
10:43Everybody else left.
10:45So it's the same thing, I think, in Europe.
10:47I don't think I can expect the long-term approach from American investors in Europe if Europe isn't delivering.
10:54And that fear, of course, is for the regulators and politicians to look at and care about and take actions to avoid what happened this time around as well.
11:04So I'm hopeful that Europe will get there.
11:07And if that leads to American investors coming here, they are welcome.
11:11You know, we compete with them everywhere.
11:13We're not afraid of American investors here.
11:15You know, we're probably more respectful and afraid for them when we compete with them head-on in the U.S.
11:22But elsewhere, not much.
11:25What does it do to valuations, though?
11:26If suddenly you have these massive players of scale, it's no secret that EQT is a massive player here.
11:31But if you have global competition from the biggest players in the world, what is that doing to valuations and defense, AI, infrastructure, etc.?
11:40Yeah, the more money you have, the higher the values are.
11:44But as long as you know what you need to do with the companies you have invested in, you know, you can still manage that.
11:49And we have done that.
11:49You know, we have had competition from day one.
11:51And so there's nothing new with it.
11:55I think, as I said in the beginning, I think what will benefit us is that everybody is doing so many other things than investing.
12:03What does that do to investors that are saying that this is a market and this is the juicy returns you're seeing private equity need to be democratized?
12:11Do you see merit to that argument?
12:13Yeah, I think there is, of course, an interesting source of capital coming from retail.
12:19But I think the rush to re-retail is dangerous.
12:23We need to do it in a careful manner.
12:25We need to do it with structures that is allowing the buyers to be educated and that has enough flexibility for it not to become a problem.
12:35We have seen some examples of that and we are doing it at the same time.
12:39But we need to do it in a careful manner.
12:42Otherwise, that will be turned against us.
12:44But I think it's good that it happens.
12:46Well, it's starting to happen, I think, and taking on more effect over in the States rather than Europe.
12:50Do you think it's being done in the right way in the States at the moment?
12:54I cannot comment on that.
12:56I think normally our industry goes a bit too fast without having really thought through all consequences of what we're doing.
13:03So I would expect the same thing to happen here.
13:06But, you know, it's important for us that we are not dragged into that kind of approach.
13:11Because, you know, in the end, you know, it's like IPO.
13:13We have a great brand in IPOs because we have done really good IPOs.
13:18But our industry has not.
13:19So you can differentiate by behaving in a responsible manner if you're doing it systematically.
13:25I think the same thing goes for how we address the retail market.
13:28If we do it in a responsible way with well thought through structures and educate the market well before go out and flush it with capital or offerings, we can manage that.
13:39But we as an industry have a history of not managing those things too well.
13:43What is the thing that no one's talking about right now?
13:49What are we missing?
13:52Because we covered a lot.
13:54Yeah.
13:54I think this democratization of private equity is an area of concern of mine.
13:59Because it needs to be done in a very mature and responsible manner.
14:04Because it's also public.
14:06You cannot hide anywhere.
14:08I think that's one thing.
14:09I think the other thing is probably that I'm very skeptical.
14:16We have been discussing to do investing in credit or setting up a credit business.
14:21I'm very skeptical towards that because it's not investing that sort of lending money.
14:26And that's a completely different business than what we are in.
14:29And it's also unregulated.
14:32So we have a big, big gray banking market here.
14:35Everybody was pointing at the dangerous gray market in China for many, many years.
14:40Now we have our own gray market here.
14:42And that could also lead to mishappenings that will have a negative impact on, not only on us, but also the financial sector and the societies in general.
14:53And there the regulators and the politicians are too slow.
14:56They are not agile enough securing that these things doesn't happen.
15:00You sound like Jamie Dimon.
15:02He warned about cracks in the private credit market.
15:05He compared it to, I think, the mortgage crisis in 06.
15:08Would you say that's a fair comparison?
15:11Well, the subprime, nobody here in Europe knew what it was, actually, when it started.
15:18I even had listened to Alan Greenspan in those days.
15:22And then he was asked, why didn't you alarm?
15:25We didn't even measure it.
15:28So there was ignorance.
15:29I think here it's not ignorance.
15:30Here I think it's too much greed, too fast, and there's too much money at stake for people to exploit it.
15:39And for the big banks, they think it's fine because then they have somebody that they take the first hit for them.
15:44Then they can lend to the funds and lose less money when the crash comes.
15:49And the regulators have sort of thought it was a very good thing to take out the systematic risk from the big banks.
15:55So the regulator so far has been fine with it until it cracks.
16:00And some regulators are looking at it and thinking about it and is concerned about it.
16:07But I'm sure they won't do anything before the shit is a fan.
16:13Connie, before I let you go, I've been told you're an ABBA fan.
16:17Of course.
16:18Yeah.
16:19Given that we have our Britney Spears mics on at the moment and our headsets, I have to ask you, what are you doing next in terms of music investment?
16:27Well, I cannot tell, but it's a very interesting market to be in.
16:35The work we are doing now is basically on the existing portfolio, on Avicii and on KISS.
16:40And the KISS avatar show will be sort of the next thing, maybe somewhere in the U.S.
16:46How many times have you seen ABBA Voyage?
16:48I think seven.
16:50Yeah.
16:51Do you think you'll see KISS the same amount of times?
16:54No, it's further away, and I'm more of an ABBA fan of the KISS than I want to.
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