These Fund Managers Are Raking In Capital Amid Negative Rates

(Bloomberg) -- Private equity wasn’t supposed to survive the 2008 financial crisis. After defying that prophecy, it’s now emerged as the best asset class in an age of negative interest rates.

In the Nordic region, which has been more battered by negative rates than most other places, one of the biggest private-equity funds says it would now take a “black-swan event” to disrupt the constant and heavy flow of funds into the industry.

Kristoffer Melinder is the 48-year-old managing partner of $14 billion Swedish private equity firm Nordic Capital. He says that in his meetings with “large pension managers, insurance companies, banks, sovereign wealth funds, university endowments, family offices, they all say more or less the same thing: The asset classes they’ve historically used for diversification are returning less and less in the low-interest-rate world.”

As a result, flows into European private equity are estimated to soar almost 20% in 2020. That’s as institutional investors such as pension funds try to adapt to a world in which much of the investment-grade fixed-income universe they once relied on is trading at negative yields.

In the Nordic region, a growing number of pension funds are now revising their allocation models as they ditch bonds and stock up on less liquid assets, such as private equity. Some say this is just the beginning, amid predictions that negative rates will persist well into the coming decade.

Denmark has already had negative rates since 2012. Finland got them two years later, when the European Central Bank went below zero. In Sweden, rates haven’t been positive since early 2015.

Melinder says his industry has now withstood the test of time.

“Private equity has been a very strong concept for 30 years now,” he said in an interview in Stockholm. “There were ideas that PE wouldn’t survive the financial crisis as it was all built on a pile of debt. But it turned out private equity was the asset class that delivered the best returns through it all.”

Some of the biggest Nordic pension funds seem to agree. In a recent interview, the head of investing at Ilmarinen Mutual Pension Insurance Co. in Helsinki said the best performing sub-asset class over the past 15 years has been private equity. He also said it’s tricky to maintain.

Nordic Capital recently opened an office in New York, with U.S. flows into private equity outpacing even the double-digit growth in Europe. In September, a few days ahead of the initial public offering of the biggest Nordic private equity firm, EQT AB, Nordic Capital announced it had partnered with what it called a passive minority shareholder. The partner is Ottawa Avenue Private Capital, which is owned by the family of U.S. Education Secretary Betsy DeVos.

Melinder says Nordic Capital is unlikely to need more external financing for “the foreseeable future.” Its newest fund was created last year, drawing in 4.3 billion euros ($4.7 billion) in capital.

Here Are Some of Nordic Capital’s Recent Deals -

• Acquisition of minority stake in Oslo-listed Bank Norwegian, a co-investment made together with Finland’s Sampo. Bank Norwegian offers unsecured consumer loans, credit card products, and deposit accounts to customers in the Nordics.
• Investments in ArisGlobal, a U.S.-based life sciences software provider, and Orchid, U.S-headquartered healthcare supplier of orthopedic implants.
• Conscia, Danish provider of security and IT infrastructure solutions.
• Divested Nordic e-retailer Ellos Group to apparel chain FNG.
• In 2018 Nordic Capital divested Anicura to Mars Petcare (said to be one of Nordic Capital’s best deals so far)

--With assistance from Kati Pohjanpalo.

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net;Niklas Magnusson at nmagnusson1@bloomberg.net

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