Listed fund-of-funds: Private equity for all

SPEAS was listed on the NASDAQ OMX Copenhagen early 2007, and is the initiative of Danish banks Amagerbanken, Jyske Bank, Nykredit, Spar Nord Bank og Sydbank. Around 2,000 investors acquired a total of 50,000 shares, totalling DKK 1bn. The evergreen structure of the fund, which means that all returns are re-invested into new private equity funds, ensures the fund-of-funds can meet all capital calls.

The stock is currently trading at around half of this value, at DKK 10,000 per share. "We are of course subject to fluctuations in the market," Mikkelsen concedes. The trend bears resemblance to the general consensus that a downturn is the best time to invest, with recession years often proving to be the best vintages. However, buyout activity plummeted, due to a variety of oft-cited reasons, and so did investor appetite for SPEAS shares.

"It was a natural consequence of the uncertainty that reigned the markets," Mikkelsen says. He is confident the value will increase as markets again will pick up. "For smaller investors wanting to diversify their portfolio, while at the same time maintaining liquidity, investing through a listed fund-of-funds, is an attractive option," Mikkelsen argues. Yet, he is quick to point out that that SPEAS stress the long-term nature of private equity to all their new and existing shareholders.

Gaining access
Another oft-cited benefit of investing via a listed fund-of-funds, is that smaller investors pool their capital, and thus gain access to players traditionally reserved for larger professional or institutional investors. SPEAS's focuses on the Nordic and European buyout markets, and the LP has thus far made commitments to five funds. This includes EQTs' fifth fund, which closed on €4.25bn in 2006, where SPEAS contributed €40m. It also invested €25m in IK Investment Partners €1.7bn 2007 fund, and SEK 100m in Litorina's third fund, which closed in 2007 on SEK 1.38bn. In addition, the LP has taken a €30m stake in Apax' seventh Europe fund, and a NOK 100m stake in Norwegian GP Herkules third fund, which closed in 2008 on NOK 6bn.

Regulation: a missed opportunity
As a listed entity, SPEAS is already subject to extensive regulation, however, the firm is weary of further regulations currently in the pipeline. In particular, Mikkelsen describes the proposed AIFM Directive as being "unbalanced," "disproportionate" and "not providing a level playing field" for private equity players, compared with other investors and buyers, echoing critical industry voices stating the draft Directive adds heavy administrative burdens, and criticising the third country provisions.

"It is unfortunate that EU politicians don't seem willing to take this opportunity to implement a balanced, proportionate set of regulations, which potentially could benefit the private equity industry - at least on a net basis - as well as the EU economy as a whole, as private equity stimulates growth and competitiveness."

Despite his concerns, Mikkelsen is still convinced that, despite the negative affects on the industry if the AIFM were to be implemented in its current form, the private equity business "has been, and still is, very adaptive" and will therefore survive. SPEAS intends to continue investing, and hopefully reap the rewards.

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• Topics
• Nordics
• LPs
• Sweden
• Denmark
• Norway
• AIFM Directive