Frequently Asked Questions about Nordic Capital and Private Equity


1.     What is Nordic Capital?

Nordic Capital is a number of private equity funds focusing primarily on investments in the Nordic region. Through responsible and committed ownership and by targeting strategic development and operational improvements Nordic Capital enables value creation and build enduring companies in its portfolio. 

The Nordic Capital Funds have for over 25 years delivered outstanding returns to investors, which has led to a good reputation in investment and portfolio management.

  • Eight funds raised and closed since inception with a total of approximately EUR 12.5 billion in committed capital
  • Investments in 90 portfolio companies and 145+ material add-on acquisitions
  • 50 exits, including 15 IPOs*
  • Current portfolio includes 34 companies with aggregate revenues of over EUR 14 billion and circa 67,000 employees**
    Information above as of May 2016


 *) Shares are still held in listed Europris, Capio, Tokmanni and Resurs Holding
**) 2015 reported revenues


2.     What is Nordic Capital's investment philosophy?

Nordic Capital focuses on medium-sized buy-outs. Since its inception in 1989, Nordic Capital has become a leader in Nordic private equity investments and has developed a strong track record of investing across a broad range of industries and sectors. Healthcare remains a key specialism and Nordic Capital is Europe's most experienced private equity investor in the sector.

3.     In which market areas is Nordic Capital focusing its operations?

Nordic Capital is primarily looking for acquisitions in the Nordic region. But its diverse business knowledge means that it also considers investment opportunities in other markets.

4.     Who owns the Nordic Capital funds?

Nordic Capital is investing from funds where the capital is supplied by large Nordic, European, US and Asian institutions - e.g. corporate and public pension funds, funds-of-funds, family offices and insurance companies, as well as from Nordic Capital Partners.

5.     What is Nordic Capitals and private equity's function in society?

Private equity has several functions:

  • to contribute with dedicated ownership, expertise and capital, hence helping companies to develop and reach their full potential
  • to play an important role by channelling institutional capital to companies with great potential and a need for capital, while these funds are managed through an active, long-term and responsible ownership
  • to develop smaller companies, in addition to offering mature companies the opportunity to take the next step in their development
  • to act as catalyst and facilitator when finding new corporate structures and business models, in order for companies to survive and continue to develop in the global competition

6.     What is your view on private equity as an owner compared to other forms of ownership?

Different forms of ownership lend itself well depending on the company's situation. Private equity funds are suitable owners for:

  • Businesses in need of a strategic realignment or increased ownership focus
  • Specific business units in a company that do not belong to the core business, and that can be developed better in a new structure or as a standalone company
  • Situations that require a more long-term ownership - companies that are willing to accept a reduced profitability in the short term in order to build a stronger and more valuable company in the longer term

  Private equity undertakes the role of long-term owners

  • Committed owners are an important component of the business community
  • Private equity funds typically invest with a time horizon of 3-7 years, a relatively long-term ownership model

Unlike many foreign players, Nordic-focused private equity funds have an understanding of the uniqueness of the Nordic business community

  • Relationships with employees
  • Unions
  • The society in general

7.    Is it different to own and develop a company in the welfare sector compared to other sectors?

In the welfare sector, as in other sectors, it is vital to create the highest quality and customer satisfaction possible, which is done through developing the company's operations. Ensuring transparency and customer satisfaction is even more important in tax-funded businesses.

In our opinion, private equity has contributed to higher quality, created increased freedom of choice and improved efficiency and therefore been a good owner of tax-funded businesses. Consequently, it has been beneficial to both taxpayers and society.

Nordic Capital Fund VI currently owns Capio, that operates the leading privately owned hospital in Sweden, St. Göran. In the Stockholm "Landsting's" own assessments, St. Göran has lower cost but significantly higher patient and staff satisfaction. St. Göran proves that Private Equity owned enterprise in welfare sectors can be beneficial for all stakeholders.

8.    Is it problematic that private equity-owned companies in the welfare sector make profit on taxpayers' money?

Quality and long term value creation go hand in hand. No value is created in a company without high quality and customer satisfaction.

It is important to remember that private companies compete with publicly owned businesses in these sectors. Improving operations and providing higher quality is the only way to create value in these sectors.

Nordic Capital's portfolio companies that operate in the welfare sector offer new opportunities and greater freedom of choice to all users of welfare services, something that is appreciated by both users and taxpayers.

9.    Why are the Nordic Capital funds located in Jersey and not in an on-shore country?

The funds are located in Jersey as Jersey is a highly regulated international finance centre offering stability as an independent jurisdiction.

10.     Given that several private equity firms have communicated their intention to on-shore their future funds, are you following them?

Nordic Capital has not taken any decisions regarding changes in the structuring of its funds. Ultimately Nordic Capital's funds are based where the investors prefer them to be based.

Nordic Capital's funds have strong track records and many investors have continued to invest in the funds. That could be seen as a sign that the investors have been satisfied with the structuring of the funds.

11.  What is Carried Interest and how does it work?

Carried interest is the portion of the pre-agreed profit split between the investment manager (or related entity) and the other investors which is asymmetric in relation to invested capital and only paid out to the investment manager if the total return exceeds a certain pre-agreed threshold.

A private equity fund is started by the investment manager, often an entity set up by a group of individuals. They take initiative to start the fund, invite a group of passive investors to join the fund, and also invest alongside the other investors. It is important that they invest their own capital in the fund and thus face the same risks as other investors. They also take a specific risk in initiating the fund.

The fund invests in companies; owns and supports their developments; and, after normally 3-7 years, sells the companies. The fund aims to sell the companies at a higher value than they were acquired at. If successful, this higher value is a capital gain providing the fund and its investors an investment return on their investment. This investment return partly accrues to all investors in the fund in proportion to their investment into the fund; and partly, if the fund is very successful, the excess investment return accrues with 20% to the investment manager, and 80% to all investors in the fund. This asymmetric investment return, accruing only in very successful funds with very high returns, is called carried interest.

Private equity investors expect high returns on their investment, before any carried interest accrues to the investment manager (and its owners). First of all the fund must return all capital contributed by the investors. Then it must generate a previously agreed rate of return ("hurdle rate" or "preferred return"). The hurdle rate is most often higher than the expected average return on equity markets. Industry standard is 8%. In addition, the fund must also return all fees and expenses, which in effect frequently increases the hurdle to 11-13%.

The purpose of this is to guarantee that the investment manager has aligned interests with the rest of the investors - they take risks and invest their own money - but also an incentive to achieve for the best possible performance of the fund (they get a larger share of the profits if the fund generates extraordinary results).

Scientific research (often labelled "agency theory") has shown that private individuals managing an enterprise - which in private equity is the individuals establishing the investment manager and initiating the fund - need to have an asymmetric upside investment return in order to have aligned interests with the large institutional investors that comprise the passive investors into the fund. Research shows that private individuals frequently are more worried about losses than institutional investors. Without such asymmetric upside, private individuals tend to manage the enterprise in a way that the passive investors would view as overly risk-adverse. This theory is frequently also applied to other situations, for example ship captains in the 18th century, or in modern day management teams in companies; the private individual who is asked to invest in the enterprise which he/she is managing, needs to have an asymmetric investment upside in order to manage the enterprise at a risk level that is desired by the passive institutional owners.