The third episode of Antibörspodden (The Anti Bourse Podcast), the podcast entirely dedicated to investments outside the stock exchange, is about private equity investments. We have invited Henrik Westfeldt, an experienced investor in the field, to discuss private equity as an investment and as an ownership model: why should one invest in private equity and how will it develop in the future?
Private equity is the asset class that has historically generated the best return. According to data from Preqin, private equity has had an annual median return of 16.7% between 2005 and 2018. But it is also an asset class where there can be large variations in liquidity, risk and return. Something that places high demands on investors.
Henrik Westfeldt has over 30 years of experience in private equity investments from his years at Skandia Asset Management and as co-founder of the successful private equity company Priveq.
"One of the biggest benefits of private equity is the opportunity to generate higher returns. "I've been involved for more than three decades and there have been several ups and downs. But if you are long-term, you can create value by being an active owner and developing companies and selling at the right time," says Henrik Westfeldt, partner and investment manager at Priveq.
Four phases in private equity investments
We usually talk about four different phases in private equity investments: 1) seed capital - which is about early investments in companies, often involving different types of research and often with high risk, 2) venture capital - investments in companies that are on their way to the market or are in an early growth phase, 3) growth capital - which is investments in growth companies that want to grow further, and the final phase, 4) buy out - investments in stable, established companies.
Different phases come with different risk and return profiles. Priveq, which specialises in growth capital and small and medium-sized buy-outs, generates returns by creating higher value in the companies they invest in, develop and sell. They do this by providing specific expertise in areas such as growth strategy, product development and sales, or by providing new capital for geographical expansion and add-on acquisitions. Private equity firms also often have extensive networks and contacts to use to create more business opportunities that can drive growth. Overall, the ownership model is based on accelerating growth and future-proofing the company to extract greater value from it. When the company is sold, the private equity firm generates a multiple on invested capital - Priveq's goal is to generate a multiple of three times the money.
Good news for smaller and private investors looking to invest in private equity
Historically, it has been very difficult for non-institutional investors to invest in private equity, but recently the asset class has opened up thanks to technological advances, regulatory changes and new financial products. A broader group of investors are now able to participate in private equity investments through, for example, fund-of-funds solutions.
You can listen to the Swedish language podcast on Spotify or Apple Podcasts.
For more information, contact:
Jesper Roslund, responsible for alternative funds Evli Sweden
jesper.roslund@evli.com
+46 707 608182
