Q&A: Nordic Capital's Kristoffer Melinder

Nicole Tovstiga: You recently held a final close on €4.3bn for Nordic Capital’s ninth flagship fund, exceeding the €3.5bn close of its predecessor. How was the fundraising process this time around?

Kristoffer Melinder: In the Nordic region there is strong support for private equity funds that show good returns; we had a re-up rate of 70% from our existing LPs. Since 2011, we have started modernising Nordic Capital and we did this across the entire value chain, including everything from deal sourcing, investment selection, driving value for businesses and making sure our LPs were included in this journey. We have also defined our core sectors such as healthcare, fintech and payments.

NT: How have LP demands and approaches changed over the years?

KM: LPs are becoming increasingly demanding in terms of ESG, transparency in general, and levels of disclosure. We saw this with our predecessor fund, but the trend is still clear – LPs want to make long-term decisions and seek long-term partners. The strategy among investors has changed, too. Historically, they made multiple bets in a region or strategy, but now they want fewer but stronger relationships because they have seen that excessive diversification does not always protect returns.

Most LPs will do their own diligence, including on site, reference calls and financial and strategic analysis. In this sense, the level of depth and sophistication of LP due diligence has increased. It is much more about internal operations of the institution, the level of expertise across the firm – not just management – strength of the brand and network, and the need to conduct deeper market interviews. These changes are driven by a realisation that manager selection matters. Private equity, as an asset class, performs well compared to others, but it is the capital allocated to top managers that will lead to outperformance.

NT: What are the overarching trends in the Nordic fundraising market?

KM: An increasing demand for transparency and due diligence scrutiny on the ESG and manager side are prevailing trends. As a private equity fund, we need to be able to address all of these, and the days where you could be a small shop, where you spoke with LPs every four years, are long gone. GPs are required to keep an active two-way dialogue and a high level of transparency with investors. There is the need to have an investor mentality aligned with this. It is what society expects.

NT: How has Nordic Capital dealt with pressures in a competitive fundraising environment?

KM: To succeed you need to show you are differentiated in a competitive industry. For us it is about having a strong emphasis on creating real value through team insights and a focus on driving operational improvement and transformative growth at the company level. GPs will not get away with a strong history and track record alone. They need to show they can deliver in a competitive market where prices are high. It is also helpful to have true insights into niche areas. For us, it is sectors such as payments. Of course, one cannot have leadership in the entire sector and region, but if you are more sensitive, you can have insights that allow you to buy true gems in the market and develop these into diamonds. This is increasingly important on the commercial side and is what LPs are looking for.

NT: With the Nordic region at the forefront of ESG, how do you see approaches to this evolving?

KM: The ESG trend is something that needs to be a core part of operations – it needs to be integrated across the business from managers to investment teams. And while it can contribute to the value creation aspect of a business, on the flip-side, if not done right, it is also a risk factor for returns. Most importantly, do not think you can outsource ESG, or treat an internal outsourcing of ESG as a separate function. We have three levels of mandatory training for staff and the managers of our portfolio companies. It is important to know what it takes – guidelines and practises require training and compliance systems to be understood and to work.

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