Here’s a bold statement: the private equity landscape is shifting, and it’s leaving some of its traditional backers in the dust. But here’s where it gets controversial—EQT, a leading Swedish private equity firm, is considering charging institutional investors more to participate in its deals, thanks to a surge in cash from wealthy individuals and retail investors. This move could upend decades-old practices and spark heated debates in the industry.
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So, what’s happening? EQT is exploring the idea of imposing fees on certain institutional clients when they co-invest alongside its funds. Historically, these co-investments have been a free perk for core investors like pension funds and endowments, acting as a sweetener to secure their backing. And this is the part most people miss—the rise of retail money in private equity is reshaping the sector’s economics, making firms like EQT less dependent on traditional institutional capital.
Per Franzén, EQT’s CEO, recently hinted at this shift during an analyst call. He noted that the firm generated €17 billion in co-investments last year and sees an opportunity to monetize this further as it grows its private wealth and retail client base. Franzén emphasized, ‘This is a huge growth opportunity for us.’ But what does this mean for institutional investors? It signals that their once-privileged position is under threat as private equity firms increasingly cater to wealthy individuals with newly popular fund structures.
Here’s the controversial part: One head of private equity at a large U.S. pension fund called the rise of retail vehicles ‘one of the most existential risks facing us,’ arguing that this new pool of capital will diminish institutional investors’ importance in the ecosystem. This sentiment isn’t isolated—other major private equity firms are also considering charging institutions for co-investments, as fees from wealthy individuals reduce the need to offer free opportunities to traditional clients. Some firms have already started imposing transaction fees on these deals.
EQT, managing €267 billion in assets, launched two retail-focused vehicles called Nexus in 2023, which collectively manage €1.9 billion. These vehicles invest alongside institutions in EQT’s flagship funds and directly into portfolio companies, with retail investors paying fees for co-investments—a stark contrast to the free access historically granted to institutions. Franzén assured that EQT would continue to offer institutions ‘the most attractive’ co-investment opportunities but added, ‘We feel very, very good about our ability to create a win-win-win between these client segments and EQT.’
But here’s the question that’s dividing opinions: Is this shift fair, or are private equity firms prioritizing short-term gains over long-term relationships with institutional backers? Earlier this month, a prominent trade body warned of the risks retail funds pose to institutional investors, from conflicts of interest to potential harm to industry performance. What do you think? Is this a necessary evolution, or a risky gamble? Let us know in the comments—we’d love to hear your take on this transformative trend.
