Danish election: time for industry to shout its successes

Under Denmark's outgoing prime minister Helle Thorning-Schmidt, and her Social Democratic Party-led coalition, the Danish private equity industry managed to live a relatively quiet life.

This was despite previous Social Democratic prime minister Poul Nyrup Rasmussen, who was in power from 1993-2001, being both one of the country's most well-respected politicians in the past 30 years, as well as one of the staunchest critics of private equity.

While the government's part-privatisation and sale of national energy provider Dong to Goldman Sachs in October 2013 caused enough uproar that one of the smaller left-wing parties broke from the coalition, the industry as a whole was not a target of much abuse. The ire was focused more on the terms of the deal and the fact it was sold to Goldman Sachs. Likewise, the collapse of Altor's OW Bunker last year drew surprisingly little criticism towards the industry from politicians.

But this election has created unknowns; after failing to gain a broad coalition majority, the Left party (also known as Venstre, which is actually centre-right), has formed a single-party government which will seek ad hoc support from moderate right-wing parties and the Danish People's party (DPP).

The Liberal Alliance and the Conservative party are generally seen as pro-business. However, in a historical demographic shift, the unabashedly populist right-wing DPP became the country's second largest party after the Social Democrats. They could be kingmakers in the new government, having refused to join Venstre in government as a means of avoiding the associated accountability and responsibility.

The DPP has never shied away from pushing for laws on the back of populist outrage, and with the real power it now possesses, the risk of private equity being targeted is only one negative tabloid headline away.

As such, Danish private equity would do well to go against the Nordic culture of humility and flaunt its successes and environmental and social governance efforts to amass some goodwill before the next OW Bunker or a welfare-related scandal in the vein of Sweden's Carema Cares pushes the industry into the politicians' crosshairs.

AP PE Boom
Beyond the dark clouds looming in Denmark, the wider Nordic private equity market could see a boost from the Swedish public pension system – the AP Funds – following recommendations for reforms made by a government working group.

The reforms would see the AP funds substantially restructured, with the current six funds reduced to three, but also a possible increase in their allocation to alternative assets.

Under current regulations, the funds can only allocate a total of 5% of their capital to unlisted assets, the majority of which is invested by the SEK 23.6bn Sixth AP Fund (AP6).

The suggested reforms could see allowances of up to 30% of all funds into unlisted assets, including private equity, infrastructure and possibly real estate. The most recent figures put the total amount administered by the six funds at around SEK 1.46 trillion, meaning nearly SEK 440bn could be invested in alternative assets if the reforms are implemented in their current form.

At present, AP6 invests in private equity funds, makes co-investments alongside GPs and sources proprietary deals for direct investments, in which it takes an active ownership stake.

The potential reforms would see Sixth AP Fund function as a ‘knowledge centre', akin to a GP adviser. In this new form, AP6 would source and manage the AP funds' allocations to private assets on their behalf, leveraging the knowledge it has built in recent years, with the possible addition of infrastructure and real estate remits.

The reform recommendations are yet to be approved and a decision is expected by the beginning of 2016 but, if ratified by the government, the changes would likely be implemented over the course of the next two years. It is not yet clear how the assets currently held by the six AP funds would be re-allocated across the new vehicles.

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