Profile: EQT’s head of fund management, Peter Veldman
Joining multi-strategy private equity firm EQT in 2010, Peter Veldman has been overseeing administration of the GP’s increasing number of funds as head of fund management. Following the firm’s decision to domicile all future vehicles in Luxembourg, he has lead the effort to establish and grow a fund hub for EQT in the Grand Duchy.
The Drawdown (TDD): EQT has funds domiciled in the Netherlands, the UK, Guernsey and Luxembourg – what has been the main challenge for the fund management team after the decision to consolidate all future funds in Luxembourg?
Peter Veldman (PV): The main challenge was duplicating the business model we had in Amsterdam and expanding it to Luxembourg. The setup we had in Amsterdam from 2014-2016 was really the preferred operational setup: flexibility, a strong core team, but using outside service providers to make sure we’re flexible and can have specialists at peak workloads, all of which can be managed with a relatively small team.
One of the ways we achieved this was to ensure we were aligned with the existing EQT investment strategies, where there are clear distinctions drawn between our private capital investment strategies, real assets (covering real estate and infra), and credit strategies.
In general, each investment strategy has a portfolio manager in the jurisdiction where the funds are located. This allows us to be able to react immediately when it comes to interacting with investment advisors. On a day-to-day basis, from the moment an investment advisor starts to look at a company, the portfolio management team engages with the advisor, initiating the risk management process and remaining closely involved throughout the process.
We have a fund control team that has members positioned across each of our fund management locations to coordinate and maintain oversight of all fund related administrative processes, with the majority of the team based here in Luxembourg. So when EQT does a drawdown, the look and feel we create and the way we set up the process is identical from the point of view of our clients and service providers. It doesn’t matter which investments strategy it is, a drawdown is a drawdown and the same people are managing it.
By creating those specialist teams, we ensure standardisation, which I believe is crucial to facilitating the future growth of EQT.
We’ve applied the same thinking to the team that is responsible for acquisition structures, of which the majority are already here in Luxembourg, as well as risk and compliance.
Last, but not least, we make sure we have an operational IR team– not the IR work in the sense of raising money from LPs – who take an operations perspective to make sure we have all the marketing licenses in place, and that when we make co-investments all the vehicles are set up.
That’s how we create the alignment with the investment advisory professionals within EQT Partners, the specialist professionals we have in Stockholm, and our service providers such as fund administrators, lawyers and tax advisors.
That’s the biggest change, and that’s what we are implementing as we speak, but we’ve come quite a long way in the last nine-ten months.
TDD: How did Luxembourg win out as EQT’s preferred jurisdiction?
PV: Until 2012, we had one fund administration hub, on Guernsey. All the funds were managed offshore, and in 2012 EQT decided to domicile future funds onshore as we felt it was a natural step on EQT’s growth and development journey - to further standardize and “future-proof” EQT at all levels.
When coming onshore, we didn’t have a clear domiciliation strategy, which resulted in funds being registered in the UK, Amsterdam and Luxembourg. That’s around the time when we started to see the first private equity regulations come into play, namely the AIFMD. With no-one really knowing how that would work out, EQT decided to go for three regulated managers, applying for three and receiving all of them.
Increased regulation and tax legislation triggered the need to hire more people locally and we had to build full teams with all functions in all jurisdictions.
In order to harmonize and future-proof EQT’s fund management, a decision to create one hub for future domiciliation of funds was taken. It was decided not to go outside current hubs, so the choice was really between the UK, Luxembourg and Amsterdam.
The UK didn’t do itself any favours with the Brexit vote. It could become a good position from which to manage the funds in the future, but the problem is that the uncertainty around it would last for a considerable amount of time.
From a jurisdictions perspective, Luxembourg was in our view clearly going to become a main domiciling hub in Europe. We saw a lot of our peers making the same decision, and being on the ground it’s something I can really confirm.
Luxembourg is not the cheapest domicile to have your funds in. However, it’s a well-known and established domicile. As we have so many of the private equity and alternative investments players on the ground here, the service providers are much more experienced and are quicker and more effective at doing their jobs.
The professionals who join the local team in Luxembourg have often been employed in the fund industry before joining us. This adds a lot of value to the team because they have experience of certain aspects of the fund management being done in different ways, which gives us a broader perspective. Equally, when we have discussions with the regulator they have a very good understanding of what private equity is all about, and that makes discussions with them more productive.
TDD:How willing are private equity firms to move jurisdiction?
PV: It is not an easy decision since the lifetime of a fund is effectively 15 years – from the start of marketing, until liquidation. It’s extremely hard to move a fund from one jurisdiction to another. If PE firms feel comfortable, and their clients are comfortable with the GP being in a certain jurisdiction, they will stay there.
The most important signal that Luxembourg is giving us is that they will make sure that whatever changes occur with regards to legislation, they will work with the PE firms to ensure interests are aligned with Luxembourg as a jurisdiction.
TD: Does EQT have a plan to move its UK-based funds out of the country, should it be necessitated by Brexit?
PV: No, the major fund that we were managing in the UK is EQT VII [the firm’s 2015-vintage, €6.75bn flagship buyout vehicle] and with that we put a contingency in place from the start. We have since moved the manager to Luxembourg.
We know what it takes to move the manager of a fund, having been through the process already. However, what EQT is currently managing in the UK is rather limited. The real estate fund is managed in the UK, we have a couple of feeders in the UK, and we have some of EQT credit business in the UK.
And we also have contingency plans in place if Brexit becomes an obstacle.
TD: There’s a huge amount of outsourcing available to the PE industry, what parts of the business are you comfortable outsourcing, and which need to be managed internally?
PV: When it comes to outsourcing, you need to own the process and have proper oversight and control. We have outsourced all the fund administration and SPV administration to Citco, which also provides the depositary services for the majority of EQT’s funds.
The way EQT has setup the contracts is that we have a regular review of service providers, and benchmark them on a regular basis. Cost is an important factor, but it’s also about the quality of service and the combination of the two. Relationship is an important factor in that equation as well.
Aside from fund and SPV administration, we manage everything else in-house with the assistance of local specialist advisors. We would, for example, engage one of the local law firms, and invite one of their lawyers that we work frequently with for a three-month “secondment”, where they join our team to understand how we work, what we look for and our procedures.
Typically we will manage a lot of the legal aspects of our work internally until quite late in the process, before bringing in external firms. But when we are really busy, with a lot of activity across the various funds that we manage, we would involve them earlier in the process.
Because they’ve been here three months within the last year/year-and-a-half they know very well how our procedures work, and they can basically do some of the work we normally do on the ground to help and assist us.
Two things we would not outsource is risk management and portfolio management under the AIFMD.
TDD:The debate around the application of technology in the fund management space has been very lively, how does EQT employ technology in your area of the business?
PV: We have made a big step within EQT on our digitalising efforts, starting towards the end of 2015 when we began rolling it out internally.
Initially, the focus has been on EQT’s investment advisors, making sure they have the best digital tools available. But we are also focusing on enabling collaboration within EQT, so we can really see where the investment advisors are in their process. That allows us to effectively follow up on the portfolio risk management process, which falls under the Fund Management team, and is something we definitely don’t outsource.
We are also doing a lot on looking into the application of technology. EQT has a strong team supporting us from Stockholm, where we have an in-house developers team.
The firm looks at a combination of what we need to build, what’s available out there, and I think we will make a strong effort in the next 18 months to develop tools that will help EQT on the fund management side, to have an operational platform that we can leverage.