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IPE special report May 2018

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Swedes and Dutch scrutinise private equity funds’ role

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EUROPE - A week before general elections, the Swedish government has raised concerns about private equity fund Cevian's investment approach in Volvo.

This could  mean that the AP state buffer funds' holdings in the company grow and that regulations on private equity funds might be revised.

The Sweden-based Cevian fund managed, by Christer Gardell and a UK fund,  Parvus Asset Management, have acquired 5% of the voting stock of Volvo and is pressing the company to pay out large dividends to shareholders.

Cevian has a reputation for buying into undervalued Nordic companies and creating value by restructuring financial and corporate strategies. Most notably it was one of the few Swedish shareholders in Skandia to support Old Mutual's take-over bid last year.

Sweden's Prime Minister Göran Persson said that he is worried about shareholders who only take a short-term investment interest in companies such as Volvo. Minister for Social Affairs, Sven Erik Österberg called on pension funds to rethink their investment in private equity funds such as Cervian and called for more transparency in such funds' investment.

The Swedish financial supervisory authority, Finanzinspektionen, is to look into that issue.

AP1, the largest of the national Swedish pension buffer funds, defended its extensive investments both in Cevian I and Cevian II. In total, 0.2% of AP1's more than €20bn portfolio is invested in unlisted securities and venture capital funds.  Some €40m will be invested in the Cevian II fund and €30m was allocated to the now closed Cevian I, as of year-end 2005.

"My assessment so far is that Cevian has exerted a positive influence in many
companies", says William af Sandeberg, managing director of Första AP-fonden.

"So far,  what we have seen about how Cevian runs its business is that it is not inconsistent with its outspoken strategy", AP1 spokeswoman Nadine Viel Lamare told IPE. Annual profits in Cevian I were 78%, AP1 said in a press release.

Swedish pension funds are not too worried about the government bringing about changes to investment opportunities for pension funds regarding private equity. Firstly new regulations would have to pass various stages, secondly elections are coming up next weekend and the opposition parties have not joined in the government's criticism of Cevian - neither, however, have they defended the fund.

Björn Franzon, deputy managing director of AP4, points out that Cevian "has a special way of acting. Other private equity funds don't have the same investment policy". Together Swedish state pension funds have investments worth SEK 30bn (€3.2bn) in private equity.

As for Volvo, the government is looking into possible ways of changing the ownership of the company to ensure its survival, Anna Helsen spokeswoman for the Prime Minister confirmed to IPE. 

However, she rejected Swedish media reports according to which Persson said that the AP state buffer funds should control Volvo. "I know in the Swedish media they say that he wants the AP funds to go into Volvo and he never said that. He said that they should play a role. The media took it too far", Helsen said.

Several pension funds have direct holdings in Volvo as well as via funds. AP1, which owns 1.0% in capital and votes did not want to comment on the prime minister's plans. AMF, which was the second largest shareholder with 4.1% before Cevian bought into Volvo, stressed that they are long-term shareholders as well. "We can do as much to stabilise Volvo", CIO Sarah McPhee told IPE. Other AP fund holdings in Volvo's capital are as follows: AP2 1.8% , AP4 1.5%, AP3 0.6%.

Meanwhile, the Dutch pensions regulator De Nederlandsche Bank has announced that it will closely monitor the increasing financing by private equity. "It has increased the financial risks at companies," it said.

"Especially in case of leverage buy-out, companies' debt and susceptibility to interest rates increase. The popularity of private equity investments has led to intense competition amongst financiers, which has caused an area of tension between a proper judgement of the risks and competitive pricing," DNB explained.

"Because of their investments and services to the private equity market, pension funds, insurers and banks are exposed in several ways to the risks," the supervisor added.


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