PRINT THIS PAGE Nordic private equity is going global26/10/2005. Source: SJ Berwin. Carl Nisser
In recent years Nordic private equity funds have increased their search for investors beyond the Nordic markets, says SJ Berwin, and Nordic LPs are increasingly investing in funds outside the Nordic countries. These two trends have impacted on Nordic market conditions, raised legal issues that arise in an international environment and prompted developments in the permitted allocation of funds. The Nordic countries are significant players in the European private equity industry. The share of the Swedish and Finnish gross domestic product invested in VC and buy-out funds was 0.38% and 0.31% respectively in 2003, with the UK allocation for the same period exceeding 0.8%.
These were the only three countries to exceed the European average of 0.29% of GDP invested in VC and buy-out funds. The total amount raised by private equity and VC funds in Europe in 2003 was E 27 billion; 55% was raised in the UK and 8% in Sweden.
Swedish GPs are increasingly raising funds abroad, with often less than 50% of investors’ capital originating in Sweden. As a result, fund structures are changing. Private equity funds initiated by Swedes and intended for investment in Swedish companies are increasingly domiciled in Guernsey or Jersey, with a management company in Sweden.
By domiciling funds in the Channel Islands, international investors, including US investors who account for the largest pool of international private equity investment, can participate in structures that are more familiar to them. Recently, the Luxembourg SICAR has become a popular alternative to a Channel Island Fund and Delaware partnerships are sometimes used as some US investors prefer this type of partnership.
Due to the introduction of more attractive fiscal rules for Swedish stock companies (ABs) used as holding companies, ABs have started to replace KBs (Swedish limited partnerships) as a vehicle for funds. However, recently Swedish tax authorities have demonstrated a reluctance to grant the intended tax advantages so the future for such Swedish holding companies is not certain.
In addition to a greater variety of fund structures, pension funds in the Nordic countries are increasing the allocation of funds that can be invested in private equity. This trend has been led by the Danish ATP Private Equity Partners (a state pension fund), which can invest up to 10% of its total funds, or E 4 billion, in private equity funds over several years.
Swedish AP funds (state pension funds) can invest up to 5% of their assets in private equity. The Third AP Fund, for instance, can invest over E 900 million in private equity; four other AP Funds can invest similar amounts. The Sixth AP Fund cannot, however, invest outside Sweden.
Two other developments in the Nordic countries are worth monitoring: new legislation will allow Swedish insurance companies to invest more in private equity; a debate is under way in Norway to allow the Petroleum Fund to invest in private equity.
In recent years a clear trend has emerged in the Nordic countries. Nordic GPs have become more international in their search for funds and in doing so have tended to raise larger funds. Segulah III is a good example of how successfully a Swedish fund can raise funds both in Sweden and abroad – Segulah III was four times oversubscribed.
Carl Nisser
Carl Nisser is a member of the Swedish Bar Association and a consultant at SJ Berwin LLP. His specialist areas include international fund structures. He can be contacted on: T +44 (0)20 7533 2396 E carl.nisser@sjberwin.com
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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