How many more generalists can the Nordic PE market bear?

Two specialist investors made headlines in the Nordic private equity market in February, both announcing first-time fund-related news.

The Nordic Capital and Altor veterans behind Summa Equity held a final close on an impressive SEK 4.5bn for their debut vehicle, while Stockholm-based private equity fund Mimir Invest launched a fund of undisclosed size with a Nordic focus.

Both firms stand out from the crowd of Nordic generalists on account of their specialist propositions. Mimir will invest in Nordic and European mid-market special situations, while Summa's vehicle will have a thematic focus, making investments in Nordic business models driven by resource scarcity, sustainability, energy efficiency or changing demographic trends, with a data and digital angle.

Summa lovin'
Having hit its SEK 4.5bn hard-cap after less than a year on the road, Summa Equity Fund I is the largest maiden vehicle by a Nordic-focused investor to hold a final close since Altor's €650m first fund in 2003, and Summa said the fund had seen demand in excess of its hard-cap.

Summa and Mimir's debut funds are in line with a clear trend seen in the past half-decade among first-time buyout funds focusing on the Nordic market: specialisation.

In addition to February's fund news, four first-time fundraisers have held final closes in the past five years, according to unquote" data. Of these, only Ceder Capital's SEK 350m vehicle is a generalist – though Norwegian buyout firm Longship is in the process of raising its broad-spectrum debut.

The region's fundraising statistics show a clear appetite among LPs for Nordic-focused funds with a specialist remit, but the absence of new generalists paints a less encouraging picture for private equity professionals thinking of launching the next Nordic Capital or EQT.

Without a compelling, unique strategy proposition to set a generalist apart from all the other GPs selling themselves as "market leaders" or "value creation experts", it can be difficult to see the attraction for LPs

According to unquote" data, Nordic-focused funds that held final closes during the past five years raised €29bn. While not all of the capital will be invested in the Nordic region, pan-European and global funds have and will continue to commit substantial amounts of capital to the region.

Between the amount of capital raised and the maturation of the Nordic private equity industry in its 25 years of existence, competition for assets has increased to the point where local professionals are lamenting the loss of proprietary dealflow, painting a picture of a potentially saturated market for private equity investors.

LPs are also increasingly able to make direct investments in a market where most assets will be sold through structured processes, allowing for greater access. More Nordic pension funds are developing primary deal-making capabilities and the region's private equity players have seen growing competition from family offices making direct investments over the past two years.

Stand out from the crowd
Without a compelling, unique strategy proposition to set a generalist apart from all the other GPs selling themselves as "market leaders" or "value creation experts", it can be difficult to see the attraction for LPs.

However, the other side of the argument – as presented by one placement agent – is that the Nordic region has a history of strong returns, and LPs continue to see the region as a solid performer. There is demand for the political stability, quality of assets and skills of the Nordic private equity industry across the spectrum of fund sizes.

With the quality of legacy managers in the region, alumni from the established houses are bound to strike out on their own, and given the increasing barriers to accessing the FSNs and Altors of the region, there will likely still be demand for smaller managers – even with a generalist remit. The demand is in part fuelled by local pension funds that struggle to find yield in a negative interest rate environment and that have the proximity and market knowledge to commit smaller amounts to local, unproven managers.

Similarly, the Nordic market's ability to support newcomer generalists draws from the insatiable appetite for private equity exposure among LPs across Europe, the US, and increasingly Asia, due to their search for yield in a zero-rate world.

The question is for how long that demand will continue, especially if yields in safer asset classes begin to climb from their currently depressed level.

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