Nordic Capital ups skin in the game in €6.1bn Fund X

The firm made a 6.5% GP commitment to Fund X, the largest by far across its vehicles, managing partner Kristoffer Melinder tells PEI.

Nordic Capital this week held a final close on one of the largest PE funds in the pandemic era.

The Stockholm-based firm collected €6.1 billion for Nordic Capital X, surpassing its €5 billion target and its hard-cap of €5.75 billion, according to a statement.

Fundraising was completed in less than six months and conducted without any face-to-face meetings, the statement noted. The firm reached a first close on more than €5 billion in August, as Private Equity International reported.

Nordic Capital made a 6.5 percent GP commitment to Fund X, the statement noted. Kristoffer Melinder, a managing partner at the firm, told PEI the commitment is by far the largest the firm has made across all its funds.

It is unclear how much the firm committed to its prior funds and Melinder declined to comment. He noted that as the size of Nordic’s funds have risen over the years, so have the proportionate equity commitments from the firm’s partners.

“We believe that the more money we put into a fund, the better investors we become over time. Putting in significant money shows alignment with our LPs. It makes it very visible to them that we are risking our own capital.”

Melinder added that the firm’s partners have formed a consensus that each need to make a meaningful personal commitment to the next fund. “It’s never happened that anyone has balked at committing their own capital to the fund.”

He declined to comment on the management fee and noted it was in line with industry average.

Fund X is 42 percent larger than its 2018-vintage, €4.3 billion predecessor and nearly 75 percent larger than the 2013-vintage, €3.5 billion Fund VIII.  Nordic’s Fund VIII delivered a 10.43 percent internal rate of return and 1.37x net multiple as of end-June, according to documents from the Minnesota State Board of Investment. Fund IX, meanwhile, generated a 26.31 percent IRR and 1.15x net multiple.

Investors in Fund X include the Massachusetts Pension Reserves Investment Management Board and South Carolina Retirement System, according to PEI data. They committed €175 million and €100 million, respectively.

The firm received a re-up rate of about 90 percent for Fund X, according to the statement.

Nearly 40 percent of Fund X’s LP base are from North America, 27 percent from Europe, 17 percent from Asia, 15 percent from the Middle East and the remaining 3 percent from the rest of the world. Private and public pensions made up nearly half of LPs, followed by sovereign wealth funds (16 percent), fund of funds (13 percent) and family offices and financial institutions (21 percent), the statement noted.

Melinder said that with virtual fundraising, the firm had initially seen many LPs come to their fundraising with “some specific requirement on physical due diligence and meeting GP teams in-person”.

“This was obviously largely impossible to accommodate during the pandemic, and we had to work through that and give them as much interaction as possible but without the actual visit. Some of the LPs had to reverse their previous policies around this.”

Deal opportunities

Capital raised for Nordic Capital X will follow the strategy of the firm’s previous funds, targeting mid-market companies in Europe. It will invest in healthcare, technology and payments, and financial services sectors, according to a statement. Fund X will also have a smaller global mandate also for tech and payments businesses.

Nordic has already made its first investment – also conducted virtually – from Fund X, acquiring Copenhagen-based software company Siteimprove from Summit Partners in September. Melinder said the firm benefited from its experience and focus on the technology sector and the fact that it had done pre-due diligence early in the year before covid-19 struck.

Asked how Nordic plans to deploy €6.1 billion in a tougher market environment, Melinder said the firm is “sticking to its knitting, buying healthy businesses in growing sectors”.

The firm does not invest in distressed, turnarounds or credit strategies, he added.

In fact, covid-19 has in many cases accelerated trends behind which the firm was already investing, such as digitalisation and the shift to online, remote working and increased demand for efficient healthcare, he said.

“There is a large digital and tech content in what we do and we have long experience in healthcare, so the trends are with us.”

He noted, however, that deal sourcing will be more challenging for all investors if the pandemic and resulting social restrictions continue over several years. LPs are also mainly concerned about the “competitive intensity and valuation levels in the European market”, he added.