Kristoffer Melinder, Managing Partner of Nordic Capital, talks to Private Equity News about the management company's record-breaking fundraising and its outlook for 2023.
Nordic Capital a string of records
Just as fundraising and transactions began to plummet last year, Nordic Capital, one of Scandinavia's largest Private Equity firms, defied the odds by raising its largest fund in just nine months, calling on investors for 9 billion euros. Altaroc has included Nordic Capital Fund XI in its Vintage 2021 portfolio.
A few weeks later, in October 2022, the Stockholm-based company celebrated the biggest disposal in its history, achieving a 19x return on investment with the £2.25 billion sale of UK-based The Binding Site.
The man who has been at the helm of the company for 13 years, managing partner Kristoffer Melinder, says that Nordic Capital Fund XI's raising of €9 billion - exceeding its initial target of €8 billion - was "the undisputed highlight of last year, despite the massive deterioration in the markets during the fundraising period".
K.Melinder joined Nordic in 1998, after spending two years in London in JP Morgan's investment department.
As Nordic's sole managing partner since 2016 - and previously as co-managing partner alongside Joakim Karlsson for six years - he has overseen the growth of the company, which now has over 200 employees and manages €30 billion in assets.
The company's investors are mainly pension funds, family offices, banks, private wealth managers, insurance companies and sovereign wealth funds.
Focusing on healthcare, financial services, tech and payments, technology-oriented industries and business services, Nordic has invested nearly €22 billion in 130 transactions since its inception in 1989.
"We generally look for business models with recurring revenues and avoid project risks," explains K. Melinder.
ESG, at the heart of our strategy Nordic Capital
Like most Scandinavian financial companies, investing in high environmental, social and governance (ESG) standards is one of Nordic's top priorities. Nordic Capital ranks in the top decile of global investment companies for integrating ESG factors into investment decision-making and management.
"ESG is now fully integrated into the way we make investments and manage our portfolio companies," he says. "We have sustainability roadmaps for all the companies in our portfolio, as well as for the company as a whole."
As far as governance is concerned, Nordic Capital almost always buys a majority stake in its portfolio companies, although it occasionally takes a minority stake "when we have joint control or some control over the investment".
"We don't make passive investments, we always have a seat on the board, and we don't invest if there isn't a value-creation plan that defines what we intend to bring to the investment," he clarifies.
Around 1/3 of investments, generally made over a five-year period between acquisition and disposal, are in the Nordic region, 1/3 in northern continental Europe, 1/3 in the United States and around 10% in the United Kingdom.
Past challenges
K.Melinder recalls that the most difficult part of his 25-year career at Nordic came at the time of the 2008 global financial crisis, when the company's strategy was to withdraw from investments at the peak of cycles.
"In the very difficult macroeconomic context of 2008/2009, we found ourselves in a tricky situation and a number of our slightly cyclical and overleveraged investments were difficult to resolve," he explains.
"The solar energy sector offers significant growth opportunities, but many of these investments have required considerable capital expenditure and have been subject to regulatory policies and subsidies, as well as a very strong shift in the production base from Europe to China," he confides.
In the wake of the global financial crisis, several European governments reduced their subsidies for solar energy, making Nordic's investments in this sector much harder to make profitable.
"If you give us a renewable energy company, we're not the best people to make that investment, but if you give us a medical technology or software company, we'll be the best people to understand and develop that type of business."
What's the outlook for 2023?
For Kristoffer Melinder, the market environment since the start of the year has been more difficult than expected, despite expectations of high inflation and interest rates.
"It's very difficult to fully anticipate the extent of a slowdown," he says. "We will look at our portfolio, which is very resilient, with sales that have held up well and are actually accelerating. We see that the scale benefits of this growth translate into higher margins, and that it makes sense not to necessarily sell businesses in an unfavorable market environment."
"We take a measured approach to ensuring that we provide liquidity, realize returns for our limited partners, while balancing this with the inherent intrinsic value and value creation of our businesses."
Before becoming a father of seven, K. Melinder was an avid mountaineer. He even climbed the 6,190 meters of Mount McKinley, North America's highest mountain, as part of a three-week expedition to the highest peak in North America.
"I scaled back my mountaineering activity considerably as my family grew," he declares. If mountaineering is often cited as a metaphor for life, it also seems to inspire K. Melinder's calculated approach to investing.
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