Swedish GPs and the onshore leap of faith

Carolina Neurath's book, De Svenska Riskkapitalisterna, casts a critical eye over the Swedish private equity industry and its taxes under the tagline "A story of power, money, and secrets" and has renewed focus in Sweden on the practise of registering funds in perceived tax havens.

Add to this recent public uproar against failings in private equity portfolio companies servicing Sweden's welfare sector and an ongoing tax case, and the deck is stacked firmly against the offshore structure.

"There has been a big debate about making investments in the welfare sector and then having an offshore structure, and I can't tell you how highly criticised that has been," says Tor Krusell, head of communications for Altor.

The GP is the first to launch a fund registered in its native Sweden, closing its Stockholm-based €2bn Altor Fund IV in June this year. Though it does not have any investments related to the welfare sector, it felt going onshore was a necessary step.

"When I speak to my international colleagues in other PE firms, I don't think there has been anything close to the sort of debate we've had recently in Sweden," says Krusell. "It's really been extremely negative about offshoring and welfare investments."

Coming home to roost
While Altor is currently the only big private equity player in Sweden to have a fund domiciled in its home country, it seems unlikely to remain the only hen in the coop. In a recent Q&A about his firm's court case against the Swedish tax authority, Nordic Capital COO Klas Tikkanen said the firm has considered the move onshore over the years, and that a victory in the tax case could boost the trend of moving onshore.

Likewise, Tikkanen's counterpart at Wallenberg-backed behemoth EQT, Johan Bygge, says: "We've always underlined that we have a Swedish holding company and we would like to raise a fund here, but there are a number of things that need to fall in place before we can do that.

"We have spoken to the Swedish regulators, politicians, and whoever has wanted to listen, that we would very much like to have a Sweden-based fund," he adds, but says he believes the country currently suffers from too much uncertainty about regulation and fiscal matters.

It is still very early days for bringing funds back on Swedish shores, and all eyes will be on Altor's fund in the coming years. By simply going through the process of registering its fourth fund, answering questions about Swedish fund structures, and addressing legal issues, the GP has blazed a trail, working to educate the authorities on the ins and outs of the industry.

Bringing LPs on board
A key question to address for GPs considering the move onshore is the effect of change on LPs; the onshore debate has seen many industry players voice concerns around perceived uncertainty brought around by the shift.

Though Altor did see some investors pull out of the fundraising, the GP says its Fund IV was oversubscribed in record time on the first close. With a final close on its hard-cap just three months after launch, it would seem concerns about investor uncertainty are overstated.

Altor's Krusell says the move has been a leap of faith, but believes the Swedish authorities will accommodate it: "It is a leap, but the initial reactions we have received from politicians and other external stakeholders are that this was long awaited to see a fund manager taking this decision."

Krusell says many firms may be tempted to continue with an offshore structure as it is easier, but offshore funds may end up dragging a lot of negative baggage in the future, when looking to acquire local companies.

According to Krusell, Altor does not believe an offshore structure will be sustainable in the long run, and that it has been worth the effort to take this step: "If you want to change one of the substantial ways your business is run, of course it is going to take some blood, sweat and tears to do that."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Nordics
• Regulation
• Sweden
• Altor
• EQT
• Top story