Five Questions with EQT Infrastructure’s Erwin Thompson

EQT closed its third infrastructure fund on its 4 billion euro hard cap. What does EQT look for in these investments?

For businesses, we’re looking at three criteria: essential services for society or industry; long-term stable cash flows, either through contract or market position; and … companies you can build a business plan around.

There’s a relatively massive number of sectors that can qualify as infrastructure, especially in that third filter. The areas we’re focusing on include energy, transportation, logistics, environmental services, telecom and social infrastructure sectors. One thing all those have in common is the ability to build a business plan around them.

With investments in things like bridges and toll roads, it’s not that you can’t build businesses around them, but the levers for growth are far fewer than what we typically look for. Our business plans involve situations where we can expand capacity of existing infrastructure or where we can expand geographically. We also look for opportunities where we can build additional product lines around the stable cash flows or use technology to enhance the quality of the essential services our companies provide.

How has appetite for infrastructure evolved over the years?

To be quite honest, the appetite has always been there. Characteristics of [infrastructure] businesses include providing essential services to society, and businesses with long-term, stable, reliable cash flow. One thing that has evolved, as you look at the infrastructure space, are the various flavors you can have with respect to the market strategy. While there are core infrastructure investment strategies, there’s also more value-add infrastructure strategies. … That’s really where I would say that appetite has evolved.

For example, in our infrastructure portfolio company WASH Multifamily we have seen a very stable business which provides a core service to communities and universities across North America. In this core infrastructure business we are now evolving the company to not only be best in class from a sales and operational standpoint but we are also employing a digital strategy to drive value creation in the company. We are in the process of developing an app which can drive increased machine visibility by the consumer as well as introducing dynamic pricing to manage utilization across the portfolio.

How does the larger fund change what you do?

The bigger fund doesn’t change our strategy. One thing we noticed especially with Fund II, we saw a lot of opportunities to make platform investments and grow those businesses through additional acquisitions. We look at Fund III, despite the size, being more of the same with respect to Fund II in terms of the type of companies we’ll be going after. The larger fund doesn’t mean all of a sudden we’ll be aiming for new markets.

How has President Donald Trump’s talk around infrastructure affect the environment for the asset class? Is the infrastructure market getting crowded?

We don’t tend to make investments based on GDP or macro trends. The driving force for us in looking at opportunities in and of themselves … the ability to create value, the dynamics of the company, the dynamics of creating value in going to new markets … things along those lines. It’s a more bottom-up approach we look to implement.

The competitive landscape is always changing; there’s new entrants every day. A lot of capital is being allocated to infrastructure. One thing the entire team stands behind: We do have a differentiated approach to the infrastructure markets … very growth-focused.

What is the typical hold period for your investments?

It always depends. At the end of the day what’s driving our holding periods is making sure our companies reach their full potential and go on to be good companies even after our ownership. With that said, and with the patience to do what’s right for the company, we might have close to the five- to seven-year investment horizon. But it depends on what’s best for the business.

Photo of Erwin Thompson courtesy of EQT