On the morning our panel of industry experts convened in Stockholm to discuss the Nordic market, the city was quiet, almost sleepy, with many of its inhabitants already out of town on their summer holidays. The atmosphere was a far cry from the violent protests 600 miles away in Hamburg, where leaders of the world’s major economies were gathered for the G20 summit.
The calm in Stockholm epitomises the region’s reputation as a stable and safe investment environment, in stark contrast to the political and economic headwinds buffeting some of the world’s largest markets, including China, the US, the UK and other members of the EU.
“The logical answer as to whether the political uncertainty in Europe affects the Nordics should be yes. But it’s not,” says Daniel Winther, the Stockholm-based investment director, private equity at Skandia Asset Management. The LP manages $50 billion with a 10 percent allocation to private equity.
But the region is not entirely immune to internal political uncertainty, Winther adds, citing the near collapse of the Finnish coalition government in mid-June and a general election in Sweden next year where the outcome is far from certain. “Although we haven’t faced real political headwinds for some time, they could emerge,” he notes.
Mature, sophisticated, innovative and hosting a large number of global companies, the Nordic market “punches well above its weight internationally”, says Ola Nordquist, head of Nordics at Permira, who is also based in the city. He describes the current global uncertainty as “an opportunity” for GPs.
“It’s about adapting to it. Our funds are being invested in a constantly changing world. That’s part of our job,” he says.
Permira closed its sixth buyout vehicle, which invests in the Nordics as part of a global remit, on €7.5 billion at the beginning of 2017. The fund, which is already more than 20 percent deployed, includes commitments from existing and new Nordic LPs. Permira also works to provide additional opportunities to its LP base through co-investment, Nordquist says.
Uncertainty elsewhere may even drive investment into the region as “investors would rather look at the Nordics than other parts of Europe”, says Per Olofsson, head of alternative investments at the seventh Swedish national pension fund AP7, which currently has assets under management of approximately SKr344.5 billion ($41.2 billion; €36.1 billion). Although the fund is invested in GPs in Sweden, Norway, Finland and Denmark, “[we] probably have less of a home bias than some of our peers”, he notes.
When confronting uncertainty, “the key is to keep disciplined and diversify across vintages”, Olofsson says. “Given high asset valuations, any future volatility is a concern.” However, he adds that it “maybe quite healthy. It also creates opportunities.”
He adds: “I don’t see any major changes [to the investment environment ahead]. As long as interest rates stay low funds will have no problem raising capital and the exit environment will be relatively healthy.”
Fuelled by historically low interest rates and fierce competition for assets, the deal environment is anything but sedate. “The temperature is very high,” says Stockholm-based PwC partner Erik Wall. “There’s a lot of activity. For every deal, there are a lot of funds looking at it, maybe 30 percent-50 percent more than in previous years.”
These include Italian, French, German, UK and US funds, such as a General Atlantic-led group that acquired a majority stake in Swedish online real estate market place Hemnet in December 2016.
Infrastructure funds are also extending their scope and some of the larger Nordic vehicles are investing down the scale, Wall adds.
Looking forward, he expects to see the flow of carve-outs continue. He is keeping an eye on the bond markets in case there is a downturn, including “who is exposed, what could happen to different sponsor-backed targets”, he says.
Most deal activity has been focused at the smaller end of the market, “where you’ve seen a flurry [of activity]”, says Nord-quist, adding that larger transaction flow has been slower. In bigger-ticket deals, GPs face stiff competition for assets from the public markets and Asian buyers.
“Before, we didn’t really consider it a threat if a company wanted to be sold via the public market,” says Nordquist. “That is now a real risk due to the high valuation levels. We’ve also seen a trend for credible Asian buyers coming into Europe. That was not as prevalent before.
Interest from Asian strategic investors also creates opportunities to partner with them. “We’ve been spending time in Asia making sure our assets are known, and learning more about buyers’ interests and what can be done in collaboration,” Nord-quist says.
Stay tuned for the second part of our roundtable discussion.
MEET THE ROUNDTABLE
Stockholm-based Wall has worked on numerous deals, due diligences and M&A projects with private equity firms. He previously worked for information technology company Ericsson and has 14 years of experience in the TMT industry.
Investment director, private equity
Skandia Asset Management
Winther invests in international mid- and large-cap private equity funds and co-investments, focusing on Europe and North America, and has invested, on aggregate, approximately $1.5bn since 2012.
Partner, head of Nordic office
Nordquist has worked on a number of transactions for the firm, including aquaculture company Pharmaq and communications group TDC. Prior to joining Permira, Ola worked in London at Apax Partners on a number of buyouts, specifically covering the Nordic region, and in M&A at Lehman Brothers. He was a manager in the strategy division at Andersen Consulting in Washington DC.
Head of alternative investments
AP Fonden 7
The seventh Swedish National Pension Fund has SKr344 billion ($41.2 billion; €36.1 billion) of assets, of which 3 percent is invested in private equity. Olofsson has been with AP7 since 2002.