SVCA chair Thand Ringqvist on global crises impacting Nordic PE

Mikkel Stern-Peltz: What were the key themes for Nordic SVCA members in 2015?

Elisabeth Thand Ringqvist: On a macro level, the biggest theme in 2015 was the response of the economies in the Nordic countries to the refugee crisis. It imposed a lot of new types of risk that companies had not considered previously and the Nordic countries reacted very differently to the migration, so I think it has played out in different ways.

Overall, it increases the sense of risk in the economy. You're adding something that is uncontrolled to government budgets and there is no clarity on the future design of the welfare systems. The political situation in Sweden has also been unstable since the election in 2014 with a very weak government.

These risks make firms in general less likely to advance their businesses, with the implication from the seller side that a number of companies – especially in the mid-market – decide not to sell or take the next step for their businesses. It makes the market slow down when you have these risks that are new and different to capture in your risk calculations.

Meanwhile, there is a need for the next level of education, of housing and more to ensure that this first wave of refugees coming in are integrated into society, and I think that in an ideal world private equity would play a good role in this because it has the capital and business knowledge to develop business with great pace and in a structured way. However, the political situation – especially in Sweden – when it comes to private ownership and profit in the welfare sector is dreadful. And unless something unexpected happens that locks up this situation, I could not recommend anybody to invest in the welfare sector.

Other issues that affected private equity were of course pricing, which made it difficult to buy companies at decent valuations, and the extreme focus on getting companies onto the stock markets that happened last year.

MSP: What are you expecting to see from private equity in the Nordic market this year?

ETR: From what I hear, a number of the bigger private equity firms are keeping an eye on the global crises we're facing now, such as Brexit, Russia, the Chinese economy slowing down and the opaque nature of what is happening there. That type of global instability will also affect private equity. For the long-term health of the industry, I hope investments are made with a lot of caution and care.

In the next round of funding, I think more firms will look outside the Nordic market, because it is a saturated market to some extent.

On the other hand, there's a tendency of the larger GPs also going into the stock market and working with active ownership from that angle. At the same time we're seeing others moving into the earlier stages of business growth, so there is a transition in the market that will be very interesting to follow.

Come December, we will be able to connect the dots. There's not a clear picture at this time.

MSP: Given the troubles in the US tech sector and the success of Nordic VC in recent years, is there a worry of a bursting bubble reverberating in the Nordic startup environment?

ETR: I think so. From what I see, entrepreneurs in Scandinavia are also becoming a little bit cockier about their valuations and I think that's a sign it could be difficult for VCs to find good value when committing funding, as entrepreneurs will be holding out for funding at a valuation that is not really sound. So maybe we will see the market set somewhat, but it won't be a total bust.

It will be healthy for valuations to come back to a more normal level and will be good for the economy as a whole, even if it won't be as good for the entrepreneurs.

MSP: From a public relations perspective, it has been a mixed bag for private equity in the Nordic countries – what is the current state of the private equity's image in the public eye?

ETR: In Sweden, when it comes to the government it seems there is increasingly an understanding that private equity is a form of ownership that is here to stay. I and members from the industry are being listened to now and we have put a lot of effort into showing the impact that we all have on the economy as a whole. It is a very fact-based and somewhat dull communication but very appreciated from decision makers.

The middle class is growing globally and as a result more capital will be accumulated in pension and insurance funds. That influx of money will continue to fuel the need for alternative investments and that is going to translate into having a sizable alternative sector in all Nordic countries.

When we compare ourselves to investment companies such as Investor and Industrivärlden, their portfolios had a value of SEK 350bn and the total private equity portfolio was SEK 250bn – so it's not that far from being one of the largest Swedish ownership models.

"Riskkapital" [the Swedish catch-all term for PE/VC, risk capital] is a word that is used very frequently by the government when it comes to small businesses – and in that case there is total adoration of riskkapital. When it comes to private equity, the word does not conjure very good associations.

From what I see, you have more and more people understanding what private equity is all about and we are talking more about the term "ägandefonder" [ownerhship funds].

We need to talk more about the funds' ownership and make clear the difference, as well as how private equity works. I travel around in Sweden and meet with local politicians and union members to talk about how much private equity is actually invested in these small and mid-sized towns in Sweden.

When the local politicians see that a lot of the local service providers to industrials and consumers are owned by private equity, they realise that riskkapital is more than just welfare and become more interested in attracting private equity investment to the local community.

It's in the process of changing, but I don't think it's going to be possible to totally change the public perception of private equity.

Having a negative image makes it difficult for the industry to attract the right talent, but also attract the right kind of businesses. If private equity is not considered a good form of ownership, fewer companies will be in their pipelines because owners will not be interested in selling to the industry.

It takes a lot of effort and a lot of commitment to make a difference with this. Many GPs are now very happy to talk about what they do, which they didn't before.

SVCA chair Elisabeth Thand Ringqvist will be speaking at this year's unquote" Nordic PE Forum, which takes place on May 18th in Stockholm. For more information on speakers, agenda and to book your place, click here.

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