Nordic quartet outperforms

Four of the Nordic region’s most prominent private equity groups have delivered an average IRR of 18% since 1993 and significantly outperformed the public markets, according to new research produced in partnership with the SVCA.

While it’s hardly unheard of for a private equity trade association to produce research that casts its membership in a glowing light, a report from the Swedish Venture Capital Association and Adalbjörn Stefansson, former head of buyout investments at Skandia Life, into the return performance of four Nordic buyout groups is nonetheless illuminating.

Altor Equity Partners, IK Investment Partners, EQT Partners and Nordic Capital have together generated a combined net IRR of 18 percent since 1993, the research showed. Gross IRR by deal vintage ranged from 63.7 percent in the 1995-1997 bracket to 17.1 percent in 2000-2002, the height of the dotcom bubble.

The aggregate net IRR for the funds Nordic II, IK 1994 and EQT 1 was 58 percent, the report said – the highest of any fund vintage cluster in the survey.

The Nordic region has been one of the few corners of Europe to stand up relatively well to the economic downturn. Its private equity industry is one of the most mature on the continent, and firms there have built a strong reputation with LPs for consistent returns.

Deals done by the quartet since 1993 have also outperformed the public markets by more than 1000 basis points when compared to MSCI indices, the report found. The MSCI comps used mimicked an investor who bought a corresponding MSCI country index whenever a portfolio company investment was made by one of the four firms, and then sells when the buyout group fully exited. Outperformance was significantly higher – often above 2000 bps – for most deal vintages.

Stefansson and the SVCA also compared performance to levered indices and found the private equity quartet still outperformed, suggesting private equity’s reliance on leverage to generate alpha is overstated.

Stefansson, the report's author, is understood to have left Skandia in September to found his own advisory business, Adalbjörn Stefansson consulting.

For further discussion of the Nordic region, grab a copy of the forthcoming December edition of Private Equity International, which features a roundtable discussion with three local experts who consider the region’s economy, recent deals, and future prospects.