Next Generation Private Equity

RED LEADERSHIP PERSPECTIVES

Next Generation Private Equity

A leader’s perspective on the future of impact investment and building customer understanding into the PE toolbox

A conversation between Rikke Kjær Nielsen, partner at EQT & Mads Holme, managing partner at ReD Associates

ABOUT

Rikke Kjær Nielsen joined EQT Partners in April 2010 and is a partner in the Copenhagen office. At EQT, Rikke is co-founder of the EQT Future fund, part of Global Leadership of EQT Healthcare and a Voting Investment Committee Member of EQT MM & MMEU. Prior to joining EQT Partners, Rikke worked for The Royal Bank of Scotland (previously Alfred Berg ABN AMRO) in the Mergers & Acquisitions department, latest as Assistant Director in the Copenhagen office. In 2022, she was included in PEN’s “Twenty Trailblazing Women of PE”.

Mads Holme How has the PE industry changed over the last couple of years, in terms of its challenges and central dilemmas?

Rikke Kjær Nielsen As the industry matures and grows, stakeholders around us can and should expect us to take broader responsibility for the societies that we live in. It is increasingly clear to everybody that the world is seeing unprecedented challenges and dilemmas: we have the climate crisis; we see a lack of biodiversity; we see healthcare systems around the globe under increasing pressure. Private Equity ownership can be an incredibly powerful catalyst for change and with that, I believe, we have an obligation to address some of these fundamental issues. I think it is the right thing to do as a human being and as a mother, but I certainly also think so as an investor and owner of companies. Doing well financially and doing good for the world are not mutually opposing factors, quite the opposite. It is difficult to imagine your company as a winner in any given industry if it is not among some of the most sophisticated players when it comes to impact and sustainability.

Mads You’ve been with EQT since 2010. Can you speak to the organisation’s unique philosophy and approach?

Rikke EQT was established back in 1994 out of the Swedish Wallenberg family. It was with inspiration from the emerging private equity activity in the US, but our approach has always been based on the Wallenberg philosophy in terms of long term, fundamental industrial development of businesses. This spirit is still at the core of EQT. It has obviously changed over the years and we’ve made the model more sophisticated, but we still have the ambition to be the most reputable owner of companies.

EQT

EQT is a purpose-driven global investment organisation headquartered in Stockholm with three decades of consistent investment performance across multiple geographies, sectors, and strategies.

Mads In terms of your playbook, what is your formula for success and how has that evolved over the years?

Rikke It has evolved since 1994. Today we’re a global platform. We have more than 1800 employees around the globe. We are present in more than 20 countries. We have more than €255 billion in total assets under management and we’re the third largest private equity investor globally. But we’re still very true to the Nordic heritage and values we were born with. The industrial approach to how we want to develop companies and fundamentally drive performance in our businesses remains. The days when you could just buy cheaply and sell expensively are long gone. Buyers and sellers of companies globally today are very sophisticated in their approach. Therefore, to sustainably create value for our investors, we need to fundamentally create stronger, better and more future-proof businesses during our ownership. We are growth investors with a very thematic investment approach, focused on sectors with long-term tailwinds, like healthcare and climate. We typically follow the businesses we invest in for several years before we make the investment. We like to be “local with the locals”, so having on-the-ground deal team involvement and to be on the forefront of impact investment – for example, we were the first private equity business to sign the UN Principles for Responsible Investment, the first to commit to the SBTi. Lastly, we have long focused on digitally future proofing our investments, led by our in-house EQT Digital and our AI tool EQT Motherbrain. All this is included in fairly sophisticated playbooks for how we drive value creation, which is pretty well developed even before we make the investment. And then we make sure to execute on it meticulously during our entire ownership period.

Doing well financially and doing good for the world are not mutually opposing factors, quite the opposite “

The days when you could just buy cheaply and sell expensively are long gone “

Mads And when it comes to culture – which can often be a deal breaker in many investments or M&A cases – is that part of the toolbox?

Mads You’re part of building and leading the new EQT Future fund. What has been your motivation for that?

Rikke I was particularly intrigued about how we can use this powerful ownership model to drive the change that we want to see in the world – this was really the foundation for creating EQT Future. In a nutshell, EQT Future is building on everything that is EQT heritage coupled with next level impact thinking, a flexible investment mandate and strong alignment with our investors. The way we think about impact is twofold. There is the positive impact you can have through the products and services that our portfolio companies deliver. The other part of impact investment has to do with how we operate our businesses. We have set three very ambitious ESG targets that we want all portfolio companies to deliver on by the time of our exit; we want them to (i) be compliant with the Paris Agreement of 1.5°C and be SBT certified, (ii) have full gender diversity among the top 20% earners as a proxy for who actually calls the shots, and (iii) have top quartile industry ENPS (Employee Net Promoter score), as a proxy for us wanting to have employees that are content with their workplace. This is not only the right thing to do, it is also good business.

Mads When you look at next level investment, or next generation private equity, and you look at the CEOs and decision-makers in the industry, what characterises great future leaders?

Rikke Great CEOs come in all shapes and sizes, but what they have in common is they are very strong team players. There are very few grandmasters who have all the answers to everything but if you’re a great team leader and you make sure you create both a strategic vision and a workplace that attracts superstars, you’ll go a long way.

Mads We see how critical customer understanding is for value creation. Why is that often missing from a PE firm’s toolbox?

Rikke I think there is a huge learning opportunity here – not just for private equity. It should be part of any value creation toolbox and I think that’s also the reason why we’ve worked together with ReD on so many cases in the past. It’s pretty clear that the better due diligence you do and the more you look at an issue holistically, the better-informed decisions you’re able to make. This includes understanding your customer as well as possible.

Rikke In terms of developing great businesses, we have what we call a house of value creation. That house has two key pillars in the foundation. One is financial transparency and predictability: does our finance function work? Do we look at the right KPIs and are they good KPIs for predicting future performance and where we should be adjusting our efforts? The other part is people, which really is an assessment of whether we have the right people. Do they share our values? Do they lead with integrity? Have we aces in all places? And until you have good quality in these two areas, it’s really a fragile strategy to start building a lot of other things on top.

Three recommendations for leaders

1) Create a very bold ambition; you create a clear north star. What kind of company do we ultimately want to create here? And you make sure to execute meticulously on that.

2) Always lead with values and integrity So many things become much easier if you do that and it becomes very clear to the organisation how you want to run it.

3) Develop talent. Let them grow, let them shine, let them fail, but then learn from that and move on.