PE Firms Seek Alternatives, EQT Eyes AI Amid IPO Downturn

Private equity firms pivot to innovative exits amid IPO downturn, focusing on AI and robotics investments, amidst market consolidation.

By Max Weldon

5/16, 06:03 EDT

Key Takeaway

  • Private equity firms, facing an IPO slump, are exploring new exit strategies like private IPOs and stake sales to competitors.
  • EQT AB invests in AI and robotics, anticipating significant industry impacts and envisioning robots becoming integral to office life.
  • The sector sees consolidation and growth in continuation funds, with EQT raising €22 billion for its largest fund amid a vibrant secondary market.

Exploring New Exit Strategies

Private equity firms are actively seeking innovative exit strategies for their portfolio companies, amidst a challenging market environment that has seen traditional exit routes such as IPOs and sales become less viable. Christian Sinding, CEO of EQT AB, one of Europe's largest buyout firms, highlighted at the Qatar Economic Forum the industry's shift towards alternative exit methods, including private IPOs and stake sales to competitors. This shift is driven by the need to return capital to investors, with private equity's traditional cycle of investment and exit disrupted by recent market conditions. Sinding's comments underscore the pressure from limited partners for private equity firms to explore these novel options.

Investment in AI and Robotics

EQT is focusing its investment strategy on sectors that underpin the growth of artificial intelligence (AI) and humanoid robotics, anticipating significant impacts on global industries similar to those seen with the introduction of the iPhone. Sinding expressed a belief in the transformative potential of AI and highlighted the firm's interest in the humanoid robotics sector, envisioning these robots becoming integral to office life by handling security, reception, and cleaning tasks. This strategic direction reflects EQT's commitment to investing in technologies that promise to redefine the future of work and society.

Market Consolidation and Fundraising Success

The private equity sector is undergoing consolidation, driven by higher interest rates that challenge the returns of firms. EQT, according to Sinding, is positioned to be an acquirer in this environment, indicating a trend towards the aggregation of smaller firms by larger entities. Earlier this year, EQT raised €22 billion for its largest-ever private equity fund, with a significant portion of the commitments coming from existing investors, showcasing the firm's strong investor relationships and confidence in its strategic direction. The State of Qatar, as the underwriter of the Qatar Economic Forum, plays a supportive role in facilitating these discussions and insights into the industry's future.

Continuation Funds and Secondary Market Growth

The private equity industry is witnessing growth in the use of continuation funds and a vibrant secondary market, offering new liquidity options for investors. ChrysCapital Management Co.'s recent $700 million continuation fund to maintain its stake in the National Stock Exchange of India Ltd. exemplifies this trend, providing a model for other private equity funds in India and beyond. Leonard Green & Partners' launch of a $1.5 billion secondaries fund focused on single-asset continuation vehicles further illustrates the sector's evolution. The secondary market is expected to see $135 billion in deals this year, with interest in real estate debt and non-bank lending rising as firms like Morgan Stanley engage in significant loan portfolio acquisitions.

Management Quotes

  • Christian Sinding, CEO of EQT AB:

    "Right now, there’s a big push for various forms of exit in our industry from all of our companies." "We’ve invested a lot of capital in our whole industry but we haven’t been able to do enough exits." "As more private equity giants exit their portfolio companies it will offer evidence that valuations in private markets are healthy." "[EQT might pursue deals] in the Middle East over time." "[Artificial intelligence] will ultimately have the same impact on the world as the introduction of Apple Inc.’s iPhone." "[Humanoid robotics sector is] likely to be key parts of office life in the future, handling areas including security, reception and cleaning." "The ongoing consolidation in private equity will continue with higher interest rates putting pressure on firms’ returns. EQT is likely to be an acquirer of smaller firms in this environment."