Nordic Private Equity is Going Global

Advokaten Carl Nisser, Consultant to SJ Berwin, London

Over the last several years Nordic private equity funds, including venture capital funds, have accelerated their search for investors beyond the Nordic markets. At the same time, Nordic LPs are increasing their investments in funds outside the Nordic countries. These two trends have significant impacts on Nordic market conditions and the legal issues which arise in a more international environment.

For background purposes it is worthwhile to note that the share of GDP in Sweden that is invested in VC and buy-out funds was 0.38 per cent and 0.31 per cent in Finland in 2003. The UK allocation in the period exceeded 0.8 per cent. Only these three countries exceed the 0.29 percent European average amount of GDP invested in VC and buy-out funds. The total amount raised by private equity and VC funds in 2003 in Europe was 27 billion Euros of which 55 per cent was raised in the UK and 8 per cent in Sweden.

The introduction of more attractive fiscal rules for Swedish AB's used as holding companies, has had the effect that ABs have started to replace KBs, a Swedish form of limited partnership as vehicles for funds. The trend for Swedish GPs is however to raise funds abroad rather than in Sweden where often less than 50 per cent of investors' capital has originated. For this and other reasons, private equity funds initiated by Swedes and intended for investing in Swedish companies are increasingly domiciling in Guernsey or Jersey, whilst the management company is set up in Sweden.

Historically this has also been driven by adverse tax implications for foreign investment into Nordic structures. This enables international investors (including the US which remains the single largest pool of international private equity investment) to participate in more familiar structures. The Luxemburg SICAR has recently become an alternative to a Channel Island Fund. So far (by 1 March 2005) five SICARs have been registered and another 15 are in the pipeline to be registered. A Delaware partnership is sometimes used as one of the vehicles in an international fund structure as some US investors prefer to use such a partnership, but it does bring with it other US issues.

Some pension funds in the Nordic countries are increasing the allocation of their funds that can be invested in private equity. This trend has been led by the Danish ATP Private Equity Partners which can invest up to ten per cent of its total funds--i.e. four billion Euros over several years in private equity funds. The Swedish AP funds can invest up to five per cent of their assets in private equity which means that, for instance, the Third AP Fund can invest in excess of 900 million Euros in private equity. There are five AP Funds that can invest similar amounts. Only one of the funds, the Sixth AP Fund, cannot make investments outside Sweden.

The trends for GPs managed by Swedes to raise funds abroad and for large Swedish funds to invest abroad are clear. A third trend that needs to be observed is the transparency issue which is an issue that does not seem to create any major problems for Nordic GPs, probably because they are used to an open environment with respect to communications.

Other issues are of interest as well. Swedish insurance companies will increasingly, due to forthcoming legislation, be allowed to invest in private equity. It is interesting to follow the debate in Norway about possibly allowing the huge Petroleum Fund to invest in private equity.

The trend concerning Nordic GPs is clear. They 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 in Sweden and abroad.