OBJECTIVE
Investment assignment
AP6’s assignment is to invest capital entrusted to it in the private equity market (unlisted assets) according to the law that governs the Fund’s operations, the Sixth Swedish National Pension Fund Act (2000:193). Fund capital is to be invested such that the long-term high return and adequate risk diversification requirements are met.
Strategy
The long-term strategy is focused on allocating to funds in the Buyout, Venture/Growth and Secondary segments. Within Buyout, allocation is a combination of fund commitments and co-investments. Within the Venture/Growth and Secondary segments allocation consists of fund commitments. An important component in the strategy is to find the best fund managers in each segment and then continue to invest with the selected managers as long as AP6 is satisfied with the partnership in terms of returns, strategic direction, sustainability, shared values and other cooperation, like the opportunities to carry out co-investments.
AP6 has a very long-term view of the collaboration with selected fund managers. The funds that are interesting for AP6 to invest in are normally heavily oversubscribed and it takes a long time to work up a new fund relationship. In an established portfolio like the one AP6 has, the majority of new fund investments are made in already existing fund relationships.
Working with a combination of fund investments and co-investments in the buyout portfolio is a key part of the strategy. The value creation that occurs in mature companies make up for the largest portion of the market for private equity.
Sustainability is particularly important, given the long investment horizon and illiquid nature of private equity since opportunities for exiting investments that are not sustainable are limited. With such long-term holdings, it is important to try to assess what is sustainable several years into the future. Sustainability assessments are not only important prior to making a fund commitment or co-investment, but also during the ownership phase, when there are significant opportunities for pursuing sustainability in a sector where the business model is corporate governance.
Investment process
Investment decisions are preceded by an extensive process that can take several years. The fund selection process is selective and focuses on high-return actors that prioritise sustainability.In co-investments, business is generated based in part on a partner perspective and in part on a company perspective. Dedicated resources in the form of specialists monitor and analyse the market to identify attractive companies.
Portfolio
Investment decisions are preceded by an extensive process that can take several years. The fund selection process is selective and focuses on high-return actors that prioritise sustainability.In co-investments, business is generated based in part on a partner perspective and in part on a company perspective. Dedicated resources in the form of specialists monitor and analyse the market to identify attractive companies.
What are unlisted assets/private equity?
Investing in unlisted shares (unlisted companies), or the more common term private equity, is significantly different from investing in and managing listed shares/companies. An unlisted company is not listed on a marketplace (stock market) where the company’s shares can be traded. Unlike a listed company, an unlisted/private equity firm is an illiquid investment. An unlisted/private equity firm has a smaller number of owners who run and develop the company. As there is no marketplace, if the owner/owners wish to sell the company or their shares in it, an agreement on the sale must be reached between the various parties directly in order for the sale to take place. Another alternative is to list the company on a stock exchange. The majority of private equity investments are in large private equity firms.
To manage the illiquidity associated with investing in private equity firms, a private equity fund has a very long investment horizon. Institutional investors who invest in the fund commit to injecting capital throughout the life of the fund for a predetermined investment period. They then await distributions as the companies in the fund are divested. This is why an investment in a private equity fund is called a fund commitment. It may take 10–15 years before a fund is fully divested and the investors receive dividends on the capital injected. A co-investment, i.e. an investment in an individual company, usually made together with funds in AP6’s fund portfolio, is normally structured in the same way. In other words, the principal owner (the respective fund) is responsible for running, developing and, when the time is right, divesting the company.