Business environment
One of Europes's most established private equity market
Private equity industry started to evolve in the Nordic region in the late 1980s, when several private equity houses, including CapMan, were established. According to European Private Equity & Venture Capital Association (EVCA), there are some 270 active private equity firms in Finland, Sweden, Norway or Denmark. A bit over half of the investors are focused on large, middle market or small buyouts and the rest on venture capital or other investments. In addition to the local firms there are numerous non-Nordic players in the region. Nevertheless, competition is mainly dominated by the local investors.
According to EVCA, all Nordic private equity investments accounted for on an average of 0.8% of the aggregate gross domestic product in the region in 2007. Measured by the GDP percentage, Sweden was the largest market . In the more matured private equity markets in UK and US the respective figures were 1.7% and 3.5%.
In 2007 a total of €8 billion was invested in private equity transactions across the Nordic region. This accounted for 12% of the total amount of private equity money invested in Europe during that year.
Compared to the Nordic countries, private equity market is still undeveloped in Russia. However, the continuation of structural reforms and market deregulation are contributing to the regions strong long-term potential.
2000s – Period of strong growth
Private equity as an industry has grown rapidly. Increased allocations of institutional investors and the demand for long-term and goal-oriented ownership have fuelled the industry’s growth. Nordic region’s well-diversified industry, high-quality education, transparent financial markets and active local banks have also been growth drivers by offering large number of potential acquisition targets.
Private equity has consolidated its position in financing M&A and growth, and continues to focus typically on consolidation in various sectors, family successions, privatisation of public services and functions, and the commercialisation of R&D in the technology and life science sectors. Increased entrepreneurial activity also fuels growth.
Real estate funds, for their part, have gained an established share of institutional investors’ investment allocations. The development has been boosted by accelerated structural change, in which institutions transfer their real estate investments from balance sheets into funds. Nordic institutions typically allocate some 5% of their assets in the alternative asset class. Despite that many institutions have temporarily frozen new investment commitments owning to the economic slowdown, in the long run investors have indicated to increase their commitments in the alternative asset class.
Regulation adds to transparency
Private equity industry is well organised and aims at promoting the industry and its self-regulation. The EU legislative initiative on regulation for alternative asset managers and funds will stipulate, when passed, an operating license for participants as well as other significant requirements including fund investor and authority reporting, among others. The new regulations will burden the smaller players in particular and may also impact on the number of players to be registered. CapMan, due to the Company’s organisation and operating model, is in a good position to meet the new regulations.
Latest market outlook is published in CapMan Plc Group’s Interim Reports