Five Minutes with Jan Kühl(2)

Jan Kühl

As the Nordic economies are performing better than their Southern European neighbours, Scandinavia has attracted a lot of interest in recent years. Is the region attracting too much money? 

I get the question often: Is the [Nordic region] overheating because so much money is flowing in here? You can look at money deployed at a European level and there the Nordics have taken a relatively high share [compared to Southern Europe]. But frankly, the number of people raising funds is remaining roughly the same. I don’t see a lot of new funds flowing in. In terms of what has been raised in the last year, [GPs] are just raising the same amount or little more on average. Maybe there have been a few that have fallen out of the market and a few have changed their positioning in the market. Then you have a few newcomers, but at the same time there are others leaving the market. From that perspective, I think the market is in a fair balance. I am not that concerned for overheating.

What’s the investment climate like in the Nordics? 

The climate is fairly ok, in the sense that the established players have money to invest. Importantly, all the major banks are open for business and even the slightly smaller banks are to some extent active. The area is not over-competitive, for instance we do not consider Nordic Capital and EQT Partners as competitors. We are in the lower mid-market and there can be the odd situation where they dive down to a smaller deal, and we perhaps go up slightly in size and then we might cross, but it’s rare. 

Which sectors in the Nordics are particularly attractive and which ones are to be avoided? 

We are a bit cautious about [consumer focused investments]. In Fund II we have done two investments in retail and it’s a tough market. We know it well, but we are cautious about it. We would like to do more in healthcare, in which we have successfully invested in the past. We also like the food and agricultural sector. 

In the Nordics, there’s quite a bit of knowledge on how to effectively run farms and drive up productivity in food. We know the sector and we see some good private equity investments in consolidating some of these smaller businesses and supporting them in more international growth, as the likes of China and Brazil are looking for that technology. We also have another company called Scandinavian Track Group which does the maintenance for rail ways. It’s an underinvested segment. Two weeks ago the Danish government announced another €4 billion investment into the railway system. It’s a local growth area, so it doesn’t always have to be businesses with an international focus. 

Amid a challenging fundraising climate, do you have a tougher time convincing North Americans to invest in a European fund? 

We would like to have American investors on board, but from a time-consumption point of view it is not something we are prioritising right now. A lot of American investors are based in London and these investors we will talk to because we consider them European in a way. These are also the ones where you have no difficulty in explaining the difference between Northern and Southern Europe. The last fund was €365 million, which isn’t that big. I think we have good support from our current investor base. I’d rather spend more time getting, for example, a few more German or French investors or UK investors on board. 

What’s your outlook for the coming years in Europe? 

We don’t see overall growth in Europe. You have growth going up and down but if you look five to 10 years ahead, we suspect growth will be rather flat. And therefore, if you are not able to really be sharp on the operational parameters and thereby take market share and drive consolidation and so on, then you will not be the winner. So it’s even more important now than in the past to be operationally sharp. 

I think we will be ok in the Nordics. Not very good, because Sweden’s economic growth has gone down a bit. Denmark is still struggling to some extent but it’s moving in the right direction and a lot of good [government-driven] reforms are taking place. The Nordic area shows agility and that’s why I think the economies have been both resilient and competitive. But I am pretty pessimistic on the whole of Europe, even though I think things are easing up a bit. 

Jan Kühl is managing partner at Polaris Private Equity.