Discipline key to success in Nordics

It is about not overpaying for deals, as well as not piling on too much debt. This may be a real challenge, as banks are increasingly willing to lend as the recovery gets underway: Piers Hooper of Equus revealed that 90% of respondents to a sentiment survey this month find leverage easier to raise now than last year. Said Bard: "I would rather have too hot a leverage market than none at all. It is up to us GPs to be disciplined and not over leverage a business."

Consensus was that returns to LPs should be 15-20% net for this vintage, with top-quartile firms far exceeding this. This will be driven not only by discipline on the part of GPs, but also a basic supply and demand issue.

"In the last two years, a number of GPs have had an inherent need to do deals," Harold Kaiser, managing partner of Litorina said. Hans Wikse, managing partner of Procuritas, backed this up, suggesting that rapidly closing investment periods drove this for many firms. "Prices were high for assets because there was a lot of pressure for GPs to deploy capital. But now that is abating and dealflow is picking up."

So supply is increasing as demand is coming down, according to Kaiser: "If you have done three deals in the last year, you will be less hungry to do another now, meaning demand for assets will reduce a bit. I am 100% certain that prices will come down as a result." He added that the contraction in GDP growth in 2009 meant that only robust businesses have come to market, which will further drive strong returns.

But to reap the rewards, LPs must stay in the game, cautioned Robert Nef of Swiss Re Private Equity Partners. "A major challenge for institutional investors is exiting at the wrong time. You have to stay in it since it is a long-term asset class. It is often difficult to convince boards of this when times are tough." He concluded with the following analogy: "Odysseus would make a great private equity investor. He was able to enjoy the music, but was tied to the mast so that he could not move."

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