Argentum sees strong pipeline for Nordic PE funds in 2013

Norwegian private equity specialist Argentum has said that 41 Nordic private equity funds are seeking to raise up to €9.8bn through 2013.

The estimates are contiained in Argentum’s latest Nordic Fundraising Report, which also notes that a similar strong pipeline was projected in early 2012, but which failed to be fulfilled by the industry.

The projections matter, the firm said, because private equity as a proportion of GDP is far higher across the Nordic region than is typical elsewhere in Europe. It estimates that fundraising equates to 1.13% of Sweden’s GDP, 0.3% in Finland and Norway, and 0.2% in Denmark. Out of 12 European markets including the four Nordic ones, only the UK has a bigger proportion, according to Argentum’s figures, at 1.74%.

“The Nordic market has grown considerably over the past few years. Asset under management in the Nordics was just over €32bn in 2003. By 2011, assets under management had grown to just over €79bn.”

Last year’s (2012) poor performance in realising funds is put down to a number of factors, which may not be repeated this year, thus suggesting that the projections are more likely to result in actual money being invested as opposed to sought.

“According to investors, private equity remains an attractive asset class with regard to portfolio diversification, satisfactory returns and the fact that private equity has a low co-variance with other asset classes,” Argentum said.

“However, a handful of factors such as new regulations, a highly competitive fundraising market worldwide and economic uncertainty have made investors more selective. Subsequently, extensive due diligence has become even more important to fundraising allocations. At the same time, international fundraising trends have become increasingly relevant for the Nordics. As the Nordic market continues to grow, through more assets under management and by continuously striving to raise larger funds, the need for larger and more diversified LPs has also increased. International LPs are becoming an increasingly important investor group for Nordic funds.”

Despite being seen as a relative safe haven last year, private equity funds found it harder to fundraise, sharing the experience of other regions and markets. The average time to close a deal increased to some 17 months, while regulations such as Basel III and Solvency II “contributed to dampen investors’ appetite, particularly among banks, which have significantly reduced their allocation to Nordic private equity funds.”

“Furthermore, low exit activity has not incentivised investors to commit to new funds. Exit activity in 2012 was at a record low for the region, with only 121 exits. This was 9% lower than the previous record low in 2009.”

Money committed to private equity but not yet invested into the market stands at about €11bn in the region. Argentum classifies this as “dry powder” that could yet impact the market if ignited.

International investors will also be key to making 2013 a successful year. Between 2008-12 the number of investments made by international funds into the Nordic private equity market trebled from 4% to 12% as a shre of total deal volume.

“The developments in deal value are even more impressive. In 2008 international funds invested €1.1bn in the region and accounted for 21% of the total deal value. By 2012 international funds invested nearly four times as much with €4.2bn reaching Nordic companies. International funds thus accounted for 54% of the €7.8bn invested in 2012.”


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