Följande information om börsnoterade riskkapitalbolag kommer från LPEQ; en intresseförening för börsnoterat riskkapital. Mer information på www.lpeq.com
Sweden: a world leader in listed private equity
Historically, investors wanting to invest in private equity faced a dilemma. The sector was generating strong returns and outperforming wider market indices, but there were relatively few accessible vehicles in which to invest.
Today there is a wide range of options from over 250 listed private equity companies with combined market capitalisation of over EUR 45 billion. Sweden is ranked 5th in the world in market capitalisation, after the US, UK, France and Switzerland (Source: www.lpx-group.com at 30 September 2010).
Ratos, Bure and East Capital Explorer are among prominent Swedish listed private equity firms. SVCA listed members also include 3i, CapMan, Novestra, Traction, LinkMed, MedCap and Naxs. In addition the private equity activities of SVCA members Apax, Investor and Permira can be accessed through listed entities on stock exchanges. Many listed global funds-of-funds, such as Pantheon International Participations, have significant investments with Swedish private equity managers.
Most Swedish listed private equity companies concentrate on investing in the Nordic region. For investors seeking geographic diversification, information on additional European listed private equity companies, as well as extensive information on the listed sector, can be found at www.lpeq.com.
Listed private equity—the basics
Listed Private Equity refers to public companies whose shares are listed and traded on a primary stock exchange. In Europe, primary exchanges include the NASDAQ OMX Stockholm and the London Stock Exchange. Listed private equity companies offer the opportunity to individual investors and institutions to participate in private equity investments mainly in unlisted companies or portfolios of funds, with the minimum investment simply the price of a share.
There are three main types of listed private equity quoted on primary exchanges:
1. Direct investment company: invests in a portfolio of private companies selected by a single manager.
2. Fund-of-funds: invests in a portfolio of direct investment funds, which in turn invest in individual private companies. Funds-of-funds aim to diversify across a range of the best available private equity managers.
3. Management company: a fund manager that is listed on the stock exchange.
Each listed company, like each private equity firm, has its own investment strategy relating to geography, size and type of investment, etc. A fundamental difference is whether the listed private equity companies concentrate on buy-outs of established businesses or on venture capital/early stage investment.
Listed private equity companies also vary considerably in the number of their own holdings, ranging from specialist direct investment companies, with a handful of portfolio companies in one country, to a fund-of-funds manager with holdings in over 300 private equity funds worldwide. For information on how to analyse listed private equity companies, please visit this page.
Listed private equity is attracting increasing interest from the investment community with a growing number of analysts and mutual funds focusing on the sector. The two largest mutual funds in Sweden are OPM Listed Private Equity and SEB Listed Private Equity. Both are available for institutions, private investors and pension savers.
Listed private equity companies continually invest and reinvest; they have no fixed lifespan. Proceeds from the sale of assets are generally retained for reinvestment, rather than being distributed to investors, which might trigger taxable gains. This, together with the long term horizon of private equity, means that listed private equity is best suited to long term holding, rather than frequent trading.
Advantages of Listed Private Equity
Listed private equity offers the opportunity for retail investors as well as institutions to participate in a diversified portfolio of mainly unlisted companies. A recent trend is that some institutions will invest in listed private equity to reach and manage their private equity allocation, which will also include direct investment or investment in LP funds. To learn more about how Family Offices approach listed private equity, please see this page.
By buying shares in a listed private equity company, the investor benefits from the relative liquidity in the shares, while also participating in the often superior returns of an illiquid private equity portfolio or group of funds.
• The sector is diverse, offering a wide range of private equity investment, as each listed fund manager has different investment strategies and criteria.
• Listed private equity offers investors much greater liquidity in their shares than is available to institutional investors in relation to interests in Limited Partnerships. The latter have high minimum commitments, are typically for ten years, impose transfer restrictions and cannot be legally offered to the public. For more detail on the differences between listed private equity and limited partnership funds, please visit http://www.lpeq.com/Aboutprivateequity/LPEvsLP.aspx.
• Listed vehicles handle the cash management and administration, which can be complex for Limited Partnership interests. All listed private equity investors need do is monitor the value of their shareholdings in the quoted vehicle itself.
Disadvantages of listed private equity
• Some small listed private equity vehicles may be closely-held and can potentially be illiquid. Although technically a holding in a listed private equity company can be bought or sold at any time, there are times when this is difficult to do in practice, especially with large blocks of stock; in part because investors tend to hold on to their shares as a long term investment.
• The underlying exposure of a listed private equity company to private equity investments can vary considerably. Sometimes it may be heavily invested in underlying companies to the point of borrowing to finance some of the portfolio and be subject to the risk of gearing (although prudent use of the opportunity to gear the portfolio can be very advantageous for shareholders). At other times, the listed company may have a great deal of net cash in the portfolio, as a result for example of a number of realisations and a lack of immediate investment opportunities. Surplus cash may act as a drag on performance.
• Shares in listed private equity companies usually trade at a discount or premium to their Net Asset Value (NAV). The NAV is necessarily an estimate of the value of the underlying assets – albeit according to strict valuation guidelines – and these valuations are conducted infrequently and with a time lag. Shares can trade at a discount to NAV, particularly when stock market sentiment is depressed or subdued.
• Listed private equity is best suited to long term holding, not frequent trading.