Growth is often driven by companies whose names are not yet widely known

Around 99 per cent of businesses in OECD countries are small or medium-sized enterprises. They create jobs, develop new solutions and reshape industries, yet often receive less attention than large listed companies.

This is precisely the segment in which eQ’s Private Equity team invests. The portfolio companies of the underlying funds are often businesses that are bringing in external capital to support their growth for the first time. In addition to capital, they receive support in areas such as business development, management, board work and improving profitability.

“In these companies, value creation is above all driven by day-to-day execution. Growth comes from developing the business with a long-term approach,” Staffan Jåfs explains.

Value creation is visible in companies’ day-to-day operations

When investing in SMEs, entry valuations and the use of leverage are typically more moderate than in large companies. Value creation is based primarily on revenue growth, improved profitability and other operational development.

Exit opportunities are also diverse. Most portfolio companies are sold in cash transactions, for example to strategic buyers or larger private equity funds, providing several routes to the next phase of ownership.

In fund-of-funds investments, diversification is achieved through multiple underlying funds. Long-standing relationships with private equity firms in Northern Europe and North America have, in turn, provided access to funds managed by leading managers.

When growth transforms entire markets

Start-ups can create entirely new products, services and markets. eQ’s focus is on North America, which is home to many established venture capital managers with long track records.

Manager selection is particularly important in private equity and venture capital investing, as performance dispersion between funds is wide and the strongest returns are often concentrated among a limited group of managers. This makes strong manager relationships, networks, long-term monitoring and experience especially important in this asset class.

The pace of growth has also changed in very concrete terms. “For example, it took LinkedIn around six years to reach USD 100 million in revenue. OpenAI, Anthropic and Sweden’s Lovable have reached the same milestone in around six months,” Staffan Jåfs illustrates.

The focus remains, even as the world changes

The history of eQ’s Private Equity team dates back to the 1990s. Over more than 25 years, the team has invested in approximately 250 private equity funds, built strong working relationships with more than one hundred European private equity managers and accumulated more than 150 years of investment experience in total.

This long history has not meant standing still. Over the years, North American SMEs and venture capital have been added alongside Northern European SMEs. Through its partners, the team has also built extensive experience and a strong track record in North America. At the same time, the core investment philosophy has remained unchanged: the team seeks managers who know their target markets and take an active role in developing their portfolio companies.

Investor needs have also evolved over time. Discussions have raised the question of whether the private equity perspective focused on profitable SMEs and the venture capital perspective focused on rapidly scaling companies could be viewed as complementary parts of the same overall strategy.

The same focused idea, a new combined strategy

Based on client feedback, eQ’s Private Equity team began considering these two investment areas side by side. The strategy designed for professional investors combines private equity and venture capital funds in a diversified portfolio covering SMEs in Northern Europe and North America, as well as rapidly scaling start-up companies in North America.

The aim is to bring together companies at different stages of growth and multiple managers within a single strategy. This does not, however, change the fundamental nature of the investments: private equity investments are long term and involve risks that differ from those associated with conventional listed equity investments.

“It is difficult to find a comparable strategy with the same niche focus. The strategy is a highly useful tool for professional investors who are either new to the asset class or looking to ramp up their portfolio,” Staffan Jåfs concludes.