One of the biggest threats to a private equity firm is not being able to evolve, and part of the challenge facing them is dealing with “golfing partners” – former rainmakers in the partnership that are no longer as driven as they used to be and can end up blocking the ascent of the next generation. That is the conviction of Nordic-based private equity firm EQT’s managing partner Thomas von Koch.
Von Koch, a Swedish national who took over from the firm’s founding managing partner Conni Jonnson in 2013, said that golfing partners often enjoy de facto protection from investors, who revere them for the deals they’ve done in the past.
“The LPs want to retain them, but it’s a real turn off for all the people below that who do the heavy lifting,” he said.
Addressing the issue requires a robust approach, he went on: “Either [you say to them] ‘stop playing golf and come back’, or you need to find a new role for them, but then you also need to review their ownership of the business.”
Partly for this reason, the ownership structure of the firm is another aspect of life at EQT that gets a lot of attention. According to von Koch, who has been with the firm since inception and risen through the ranks, it is deliberately broad and flat.
He said: “From the outset we have said: we are going to be long term greedy. I have 3.5 percent ownership of EQT, […] 15 percent more ownership than a senior partner that we recruited in 2006. The same is true for Conni Jonnson.”
EQT was set up in 1994 by Swedish holding company Investor AB, US private equity group AEA Investors, banking group SEB and a number of founding partners. Today, according to the firm’s website, the partners own 69 percent of the business, with Investor AB holding the balance.
The structure is designed to enable effective succession as and when required, von Koch suggested: “Below me are about 10 senior partners. If I get a heart attack, I’ll be replaced tomorrow, because we cannot have the firm depending on one person at the top. That individual could be getting through a divorce, get sick, leave the firm and suddenly everything starts to crack. That’s not a great place to be in.”
It is a model that LPs aren’t always content with, according to Von Koch. “It’s a continuing fight with them because they would like to narrow it down and we would like the flexibility. I have a business to run and if we have a person in the team who had his best years behind him, I need to be able to move that person because otherwise I won’t be able to promote the people with potential. Investors are not buying me, but they are buying this army of 25-30 people. None of us can claim we are the best investor in the world, but as a team we are pretty good.”