Polaris holds first close for Flexible Capital fund on DKK 500m

The vehicle was launched in May 2021 with a target of DKK 1bn and is expected to start deploying capital this quarter. The vehicle was launched to make investments in subordinated loans and minority shareholdings. It differs from predecessor funds, as traditionally the GP targets majority stakes. The aim is to work collaboratively with the owners of its portfolio companies to enable strategic development.

The fund will focus on companies in the Nordic region with a particular focus on Sweden- and Denmark-based targets. Jesper Langmack told Unquote that deals outside Sweden and Denmark will also be pursued and it will target small mid-cap companies.

The flexible nature of the fund enables the GP to be involved in roll-up situations, which are like buy-and-build cases, Langmack said. The fund will invest around DKK 50m-200m per transaction. Much like other Polaris funds, Flexible Capital will target companies operating in the consumer, services, healthcare, industrial, technology and financial services sectors. However, Langmack said they are sector-agnostic. The fund will mainly invest in mature companies with strong performance goals. Langmack said: "We are very flexible, that is why we called it the Flexible fund."

Due to bank regulation packages in Denmark since 2012, Langmack said there is less competition in its segment from both the bank side and pension fund side. The regulations have increased the capital consumption for banks, especially lending to small mid-cap companies without a rating. Furthermore, pension funds were hit by the Prudent Person Principle (PPP) article 12 under Solvency II, which makes it a lot more time consuming to do direct private deals, so it makes more sense to focus on larger investment tickets to handle the bigger allocations needed, Langmack said.

Langmack also said the GP has great cooperation with many private equity houses, particularly Nordic firms. "We will absolutely co-invest, you can expect to see this."

The fund will have a 10-year lifespan and expects to deploy capital in two to three years. The GP said that it is considering using placement agents, but did not consult any for this fund. Langmack said there are no further fundraising plans and the immediate goal is to hold a final close for the Flexible fund around summertime.

The vehicle can support various situations including management buyouts, private equity sponsored support, acquisition finance, and pre-IPO, among other situations, said Langmack. He emphasised that the fund is a hybrid and can therefore tailor capital to the situation at hand. "We offer both junior capital and minority capital and we can combine the instrument to the specific investment. But we do not make controlling investments so the owner can still be in charge and we can help them to make an even better company, so we are quite different to many other funds, we are hybrid, we can offer tailor-made solutions. Typically funds have a fucus on either direct lending or private equity. Given our flexibilty, we are able to just look at the total return when we look at a investment. If it is cash interest of equity gains then it is not an issue for us."

"Low correlation to the equity market gives more diversification in a portfolio; you have higher risk adjusted expected returns compared to the public equity and credit markets," said Langmack. "Given lower expectations for public markets returns, the timing of our new fund is oppurtune. This strategy will be more appealing in the coming years as it offers solid long-term returns and at the same time gives a good diversification in a portfolio."

Polaris is also investing via Polaris Private Equity V, which launched in June 2019 and held a final close on its hard-cap of EUR 650m, surpassing its target of EUR 550m. The fund has made five deals, including G&O Maritine Group, a Denmark-based producer and distributor of maritime products, in September 2021. The vehicle invests in Swedish and Danish mid-market companies operating in the consumer, services, healthcare, industrials, technology and financial services sectors, according to Unquote Data. The fund expects to make 15 deals overall and writes equity tickets of around EUR 15m-65m. The fund is to date 27% deployed, according to Langmack.

Investors
Investors in Flexible Capital include prominent Danish family offices, as well as high-net-worth individuals and a few foreign investors, according to Langmack. 

Investments
Langmack said the fund will make around four or five investments a year and will be making its first investment in March. He added that by summertime it expects to complete two deals. The fund will make 10-14 deals overall.

People
Polaris Private Equity – Jesper Langmack (partner).

Advisers
Equity – Gorrissen Federspiel (legal).

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• Polaris Private Equity