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Investing.com -- J.P. Morgan analysts have downgraded EQT (ST:EQTAB) to “neutral,” from “overweight” anticipating a less favorable environment for private markets in the coming year, in a note dated Tuesday.
This revision is driven by equity market sell-offs and tariff uncertainties, which hinder investment decisions, exits, and capital markets activity. Additionally, the price target was cut to SEK269 from SEK425.
The analysts' updated estimates factor in a significant reduction in carried interest expectations and potential fundraising impacts, influenced by lower public market valuations and the resurgence of the "denominator effect."
They project that 2025 will be another weak year for exits, with recession risks potentially delaying improvements in carry forecasts beyond 2025.
This outlook has led to downward adjustments in EPS estimates, with J.P. Morgan reducing its forecasts by an average of 7% for 2025 and 14% for 2026.
EQT's downgrade is attributed to its earnings' sensitivity to carry and realizations, high portfolio exposure to tech-enabled, high-growth companies (sensitive to valuation multiple changes), and the bulk of its next flagship fundraising scheduled for 2025-27, which introduces further uncertainty.
In contrast, J.P. Morgan now favors Partners Group as its top pick, citing its more resilient business model with diversified fundraising across asset classes, product types, and channels.
The analysts also highlight the long-term upside potential of Bridgepoint and ICG, given their valuations post the recent sell-off.
The report also addresses broader private market trends, noting that while exit volumes have shown some improvement, they remain significantly below 2021 peak levels.
Fundraising has also slowed, reflecting the typical lag between exits and LPs' ability to commit capital to new funds.
J.P. Morgan's chief economist has increased the probability of a global recession to 60%, up from 40%, following the US administration's tariffs announcement.
This has negatively impacted global markets, with the S&P 500 and STOXX Europe 600 indices declining.
The uncertainty is creating an unfavorable environment for capital markets activity, with IPO processes being pulled.
The analysts have revised their carried interest and investment income estimates downwards, by an average of 23% in 2025E, 24% in 2026E, 9% in 2027E and 12% in 2028E.
They caution that the current deterioration in public markets will likely affect private market fund valuations with a delay of approximately 9-12 months.