The Swedish way of investing – what can we learn about private equity?

  • Panel discussion

By Doris Hofmeister

At an event organised by MU in Vienna on 19 March 2024, the focus was on private equity and what countries such as Austria can adapt from the Swedish model.

“In recent years Sweden has become a frontrunner for private equity and venture capital,” stated Annika Markovic, Sweden’s ambassador to Austria in her opening remarks at the event. “Today it has the largest and most developed private equity market in the European Union in terms of GDP.” Reason enough for MU, in collaboration with Invest Austria, the Austrian Association for Private Capital, to host a discussion round. In addition to the Swedish Ambassador, Sylvia Vana, Director for Siting and Business Services at the Austrian Federal Ministry of Labour and Economy, Petia Niederländer, Director Payments, Risk Management and Financial Literacy at the Austrian National Bank (OeNB), and Arnaud Béasse, Managing Director of Invest.Austria also took part. The panel was moderated by Doris Hofmeister, Partner & Director International Business at MU in Austria.

In her short introduction to the Swedish private equity market, Annika Markovic explained that the starting signal for its development and rapid growth can be traced back to the founding of EQT Partners in Stockholm in 1994. Other companies such as Nordic Capital and Altor Equity Partners started to grow or were founded later on as well. Their business model initially consisted of buying less successful companies, reorganising them and then selling them at a profit. Private equity makes an important contribution to economic development, as more than 300 billion Swedish kronor has been invested via venture capital alone in the past ten years, which is equivalent to around 30 billion euros. The money invested has significantly increased the profitability of the companies supported by an average of more than 50 per cent. The success of Swedish private equity companies is based not least on entrepreneurship and the country's industrial tradition. Accompanied by tax reforms and the Swedish governance model, an appropriate risk culture has developed. In contrast to other EU countries, Sweden has thus succeeded in attracting more investors and capital to the country, from which the other Scandinavian countries also benefit. Private equity will therefore play an important role in the expansion of the European capital market.

However, the Swedish ambassador also made it clear that profit alone is not enough. Rather, environmental, social and governance (ESG) issues are becoming increasingly important for all companies, but especially for the private equity and venture capital sector. In order to be of interest to investors, companies must ensure that they make a contribution to the environment and society in addition to their business, for example in order to achieve the goal of climate neutrality in Austria by 2040. The private equity sector is in a position to drive these changes by investing in smaller, unlisted but promising companies. This is supported by a growing number of private equity companies such as the Norrsken Foundation, that combine a positive investment impact with profitability. However, the private equity sector has a serious issue with gender diversity for these opportunities. Even in Sweden, a country well known for its equality, companies that are solely led by women only received one per cent of all private equity investments.

According to a survey by the European Investment Bank, it is worth investing in businesses run by women, as they achieve better results and are more profitable than companies run purely by men. So there is still work to be done in order to tap into the potential of women as entrepreneurs and to provide them with adequate funding opportunities.

For Arnaud Béasse, the Managing Director of Invest.Austria, the fact that the private equity market has developed more slowly in Austria than in Sweden is not caused by a lack of entrepreneurship and suitable companies. Rather, there is traditionally a close relationship between small and medium-sized companies and their house bank. This means that financing is usually secured without private equity coming into play. But this is about to change due to the flourishing start-up scene. These small and innovative companies are dependent on capital from investors who are more willing to take risks than traditional banks in order to grow.

Attracting this capital to Austria is one of Sylvia Vana’s tasks. The Austrian Ministry of Labour and Economy has recently staged for the fourth time the “Invest in Austria” event (not to be confused with Invest.Austria, the Austrian Association for Private Capital). The aim is to bring companies, government representatives and investors together to facilitate the entry of domestic and foreign investors. In addition to its strong economy, a high industrial and R&D share of GDP, a highly skilled workforce and progress in the green transition of its economy, Austria also scores highly with investors thanks to its central location in Europe. Vienna hosts 190,000 students, making it the largest university city in Central Europe. One in three university graduates has a degree in a STEM subject (science, technology, engineering, mathematics), ready to fuel the vibrant start-up economy that has established itself in the Austrian capital.

However, these young professionals often lack financial literacy for investing money. Petia Niederländer from the Austrian National Bank is taking care of that. She does not blame young people, as this is a social and cultural issue that affects everyone. Both the individual, who must increasingly provide for their own retirement, and companies, which should open up more to the capital market. This is the only way to generate more growth and successfully compete against large companies. While Annika Markovic does not see a structural problem in the many family businesses in Austria, that are deeply rooted in their region, Arnaud Béasse pointed out that many of them will face the problem of company succession in the coming years. A suitable candidate is not always available and this is precisely where private equity investors, who often provide expertise and managers as well as capital, could be a solution. He also pointed out, that one of the learnings from Sweden is a regulatory framework that encourages institutional investors such as pension funds to invest more money into family-run businesses and start-ups.

Sweden's success factors also include the country's positive image abroad. According to Sylvia Vana, Austria still has some catching up to do here, as the country is much better off in many areas than is recognised. For example, Austria is the European leader in the field of semiconductors in relative terms as to share in total value added, share in total employment and share in company expenditure on R&D. And it is precisely these technology-orientated areas that investors are paying particular attention to. Better marketing of these positive factors is something that could be learnt from Sweden. The human factor is of course also contributing to a country’s attractiveness for investors. Having the right people and skills helps a lot in this direction. But to truly become an important hub for private equity, countries or at least regions and cities need to establish an ecosystem for start-ups and investors. Because once such a cluster is built, other companies and investors will follow. As Sweden has successfully demonstrated in the last thirty years.

Contact Info:

Doris Hofmeister, MU Partner, Board & Executive Practice Lead Austria, active member Invest.Austria; ; Phone: +43 664 85 86 745