The Nordic region has historically been a significant source of capital for the private equity industry; however with financial markets continuing to struggle, especially within the Eurozone, it is interesting to see how active Nordic investors are within the private equity asset class and what their preferences are.
Preqin’s Investor Intelligence database currently tracks 185 Nordic institutional investors that actively invest in private equity, or are considering doing so, with public pension funds being the most prevalent, accounting for 21% of all investors. Other important investor types in the region include private sector pension funds (15%) and insurance companies, which account of 14% of all investors.
Nordic LPs (excluding fund of funds managers) have an average current allocation to private equity of 9.3% of total assets, which is below their average long-term target allocation to the asset class of 10.4%. This is also below the average current allocation of 10.5% and the average long-term target allocation of 11.2% for the whole limited partner universe (excluding fund of funds managers). However, despite typically having smaller allocations to private equity as a percentage of total assets, Nordic investors are on average further from their target allocation compared to other investor types. This indicates Nordic investors are likely to continue being a significant source of potential capital for private equity fund managers on the road.
With Nordic LPs having capital available to invest in private equity, it is interesting to look at which regions they typically allocate capital to. Nordic investors have a strong preference for investing in their local region, with 80% having either previously invested in the Nordic region or having a preference for doing so. Despite this, many do allocate capital to foreign markets also; 61% of all Nordic investors have an appetite for North America.
In terms of fund preferences, Nordic-based investors have a strong preference for buyout and venture capital vehicles, with 79% and 71% respectively having either invested in these fund types previously or that have a preference for doing so. By contrast, 31% have an appetite for mezzanine funds, whilst this figure is 28% for distressed private equity funds.
With fundraising remaining challenging, Nordic investors, with capital available to invest, look likely to remain an important source of capital for the private equity asset class.