Both our new European fund [which closed in December 2006 on €4.25 billion] and the Asian fund [$545 million, also closed last December] were well received in the market place, which was very pleasing. We've also had some strong exits: the IPO of Symrise in Frankfurt, the IPO of Salcomp in Helsinki, and the sale of Plantasjen to Apax, which nicely demonstrated that our investment model works: driving strong top line growth of a local champion prior to exit. Our special situations fund and our mezzanine business also made good progress. Overall, we saw a good return on all our business lines.
With regards to EQT, I am honestly struggling to come up with anything. However, the private equity market as a whole is behaving in ways that concern me. The industry is in danger of compromising away some of the most important elements in its tool box. For example, private equity has traditionally had a very strong and disciplined approach to corporate governance and the running of portfolio companies, but as an industry, we are increasingly surrendering this advantage in doing club deals.
I also see incentive structures shifting in private equity firms. Private equity professionals ought to focus on making good investments, rather than maximising the fixed fee income.
The club deal phenomenon could be out of fashion soon, especially if the large funds get even larger and allow their managers to do the deals they want to do on their own.
The incentive issue is more problematic. Here, I don't see any signs of change at all. In fact, some limited partners even argue that the big fee income streams do not matter because a portion of the fees will be repaid in the waterfall. I'm not sure that's the right way of looking at it.
That said, private equity has a remarkable history of fixing issues in terms of weaknesses in its business model and within individual organisations. Let's not forget that we're all smart and rationale individuals. So I do hope the current issues will be resolved in a constructive way. But the fact is, people's behaviour can change as they become older and wealthier.
We've got good investments in the portfolio and we're hoping to monetise some of them this year. We're also focusing on buying good assets for our new funds, and we will be careful and sensible doing this given where we are in the credit and business cycle. We will also continue to invest in the organisation: we don't have any assets other than people, and have to make sure we have the best professionals working for us.
We're talking about ideas, but at this point, they're really just that – ideas.
We have had such a great and forgiving market during the past couple of years, a market that has been forgiving to those willing to cut corners. Given that these conditions will change at some point, we think it will be crucial to safeguard quality in the investment process and portfolio company performance.
I'd also say this: after a downturn in the economy, the task would be to build courage. I don't think now is a time where we need to build courage.