Lower returns expected in the Nordics, say local PE leaders

With interest rates at historical lows and yields depressed across the board, the traditionally stellar performance of Nordic private equity investors is unlikely to continue in the coming years. Panellists on the leaders' debate panel at the unquote" Nordic Private Equity Forum said private equity would remain an attractive asset class and continue to outperform the market, but would not be unaffected by increased competition and the low cost of capital.

"Looking at return requirements in the future there will be a general downward drift out of necessity, unless long-term interest rates and bond yields go up," said Harald Mix, founder and managing partner of Altor. "Mainstream private equity will have to settle in at lower numbers, but will still be attractive to investors."

His view was supported by Henrik Blomé, investment director at listed Swedish private equity firm Ratos, who said investors were not necessarily expecting returns to remain at historical performance levels of more than 20-25%.

"We recently decreased our return target from 20% to 15-20%, and did not see any adverse effect to our share price," he said. "Investors in Ratos were not expecting us to reach the initial target, and were happy for us to decrease it."

Argentum CEO Joachim Høegh-Krohn agreed, saying: "It is not as easy to beat the market any more."

Off the back of a near-record year for private equity in the Nordic market in 2014, which saw deal volumes and values return to pre-crisis territories, the panellists were more conservative in their predictions for this year. The overall consensus was one of a cautious approach to continued growth, but with no mention of a risk of serious downturn.

Høegh-Krohn said he expected 2015 to be less active than last year, and Axcel managing partner Christian Frigast said he would expect a "flat-ish 2015".

Altor's Mix went slightly further, saying: "A mild correction wouldn't be bad, just to remind people that the world doesn't just go up," adding his firm would remain "cautious" in its investment strategy.

The debate also turned to the trend for Nordic private equity firms to move into other asset classes, such as infrastructure and debt, with some panellists suggesting some firms are moving more towards becoming increasingly similar to asset managers.

Argentum's Høegh-Krohn said the trend was not necessarily a bad thing, but added: "We retain a healthy scepticism towards it. You have to be very focused to compete in this market, and if you start doing a lot of things you haven't historically done, you might be spreading your wings too wide."

His view was supported by Axcel's Frigast: "You have to be truthful to what you've historically been good at and continue to improve your operating model," he said.

The unquote" Nordic Private Equity Forum will run throughout 5 May. Live coverage can be followed on Twitter using the hashtag #NordicPE

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