PSERS Jumps On Nordic Capital VII Bandwagon

The Pennsylvania Public School Employees’ Retirement System embarked on a new relationship in mid-August when it committed up to €150 million ($221 million) to Nordic Capital Fund VII LP, earmarked for Scandinavian-based companies.

Stockholm-based Nordic Capital seeks €3.7 billion for Fund VII, with a hard cap of €4.3 billion. As of March 2008, the firm had commitments of roughly €3.2 billion. The firm makes control investments in Denmark, Finland, Norway and Sweden, targeting companies with enterprise values of €200 million to €2.5 billion. Nordic Capital typically pursues the health care, industrial and consumer discretionary sectors.

Nordic Capital, with 17 partners and 22 investment professionals, has built a stellar track record since its founding in 1989, and no partners have left the firm in all that time, according to a PSERS document. The gross IRRs of past funds: 75.6 percent for Fund I; 105.3 percent for Fund II; 38.6 percent for Fund III; 29.3 percent for Fund IV; 34.5 percent for Fund V; and 20.4 percent for Fund VI, according to PSERS.

Since its inception, Nordic Capital’s funds have earned overall net returns of 46 percent, and achieved an investment multiple of 2.07, while sustaining no capital losses, according to a State of Rhode Island and Providence Plantations Investment Commission document that also states Fund VII is likely to be be oversubscribed. All Nordic Capital’s existing clients have chosen to re-up in Fund VII.

Nordic Capital intends to make 15 to 20 investments for the fund in companies with the potential for long-term value and growth through improvements in operations. The firm charges a management fee of 1.75 percent of committed capital during the investment period and 1.75 percent of net invested capital with a 20 percent annual reduction afterward. The terms include a 100 percent offset of all additive fees earned by Nordic Capital, according to the Rhode Island document.

Other LPs backing Nordic VII include, in order of the size of their commitments, Virginia Retirement System ($136 million commitment); Pennsylvania State Employees’ Retirement System (up to €70 million/$104 million); Los Angeles County Employees Retirement Association (€50 million/$73.9 million); Public Employees Retirement Board of New Mexico (€17 million/$25 million); and the Employees’ Retirement System of Rhode Island (€15 million/$23 million).

The breakdown of institutional backers of Nordic Capital’s funds is the Nordic region (20 percent); Europe (30 percent); the United States (40 percent); and the rest of the world (10 percent). Roughly 60 institutions from 13 countries have committed to the various funds, with most of the capital coming from pension funds. Fund VI closed in 2006 with €1.9 billion.

The $62.7 billion PSERS had 9.1 percent of its investments in private equity as of June 30. Private equity is a part of the private markets asset class that comprised 12.8 percent of the total portfolio. The target allocation for private markets is 13.0 percent.