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Hall of Fame #2: Nordic Capital V

The second Hall of Famer is the 2003-vintage fifth fund from Scandinavian private equity firm Nordic Capital.

Private equity is replete with firms citing impressive track records. In November Private Equity International launched the HEC Private Equity Value Creation Hall of Fame in order to discover the industry’s most successful funds.

More information about how funds are ranked can be found in PEI‘s introduction to the Hall of Fame.

HEC Private Equity Value Creation Hall of Fame inductee #2: Nordic Capital V

Our second inductee is the 2003-vintage fifth fund from Nordic Capital. The fund – which focused on mid-to-large companies in the Nordic region – raised €1.5 billion and has distributed a net multiple of 2.6x to investors.

Headline performance data**

Net IRR: 20% (third-best quartile)

PERACS Alpha: 14.7% (second-best quartile)

Distributed-to-Paid-In: 2.6x

Total Value-to-Paid In: 2.7x

Performance

According to PERACS, the performance analysis consultancy founded by Oliver Gottschalg, associate professor of strategy at HEC Paris and co-founder of its private equity observatory research centre, the fund compares extremely favourably with its relevant peers, both in terms of net IRR and total value-to-paid-in capital.

Peer group analysis

PERACS creates a peer group of relevant funds by assessing a fund’s individual deals and categorising them by sector, region, 3-year timing window and size, and then finds those funds whose deals overlapped most with these “strategic cells”. The relevant peers are:

The limited partners

Fund V is Nordic by name and Nordic by nature, having attracted 21 percent of of its commitments from LPs in the region, according to the firm’s website. These include Swedish national pensions AP Fonden 2 and AP Fonden 6, as well as Danish fund of funds manager ATP Private Equity Partners.

The fund also attracted 33 percent of its commitments from the US, including Los Angeles County Employees Retirement Association, Pennsylvania State Employees’ Retirement System and Washington State Investment Board. The pensions were joined by Aberdeen Standard Investments and Chicago-headquartered investment firm Adams Street Partners.

Manager profile

Fund domicile: Jersey

Recent track record: targeting €3.5 billion for its ninth fund, according to PEI data. The firm began exploring options for a GP-led process involving its €4.3 billion Nordic Capital VII fund in September and was working with advisor Campbell Lutyens, as sister publication Secondaries Investor reported. Buyers submitted first round bids in November, according to two sources familiar with the transaction.

Investment focus: Global healthcare, Northern European technology & payments and financial services, as well as Nordic industrial goods & services and consumer & retail (Source: Nordic Capital website)

Notable exits: Nordic’s Fund V and VI are understood to have secured a 4.6x multiple and 30 percent IRR through the firm’s exit from Norwegian pharmaceutical company Nycomed in 2011.

Standing out from the crowd

Nordic’s success could be due in part to a particularly low level of “procyclicality” with its peers in terms of investment timing, the analysis noted. PERACS defines procyclicality as a measure of the fund’s investment patterns in comparison to the overall private equity universe. The unit is taken as a proxy measurement for quality of deal flow, demonstrating the funds ability to invest when others cannot and accelerate when its peers are slowing down.

Nordic ranked far below the least procyclical quartile of its relevant peer group.


*PERACS Alpha measures value generation in excess of a public market equivalent, with the MSCI ACWI index as reference point.

**Nordic Capital did not comment or contribute to this article.