SWEDEN: An Introduction to Private Equity: Fund Formation

A Thriving Hub 

Introduction 

Sweden’s private equity industry has enjoyed a long-standing reputation for its vibrancy and success. In 2022 alone, private equity funds with teams in Sweden managed to raise a staggering SEK332 billion. Over the past decade, an increasing number of private equity firms have chosen Sweden as their preferred location for fund formation. Additionally, several private equity fundraisings exceeding EUR1 billion have been attributed to Swedish fund structures. This trend has not only influenced private equity, but has also extended to other asset classes (illiquid or with illiquidity premiums), including real estate and credit funds. The primary reasons behind this phenomenon are likely the strategic presence of Nordic fund teams in Stockholm, the ease of conducting fund operations in Sweden, and the lower associated risks.

Swedish fund structures: a catalyst for innovation 

The demand for establishing funds in Sweden has also ignited a spirit of innovation and creativity in the realm of fund structuring. Swedish fund structures offer a solid foundation that aligns with the fundamental requirements of a typical fund structure. These foundations include limited liability, no tax filing obligations for investors, no tax leakage at the fund level, and flexibility in contractual arrangements. Virtually all aspects of a traditional limited partnership structure can be seamlessly integrated into a Swedish fund structure.

Acceptance and familiarity 

Over time, investors have become more familiar with Swedish fund structures, with most experienced institutions and advisers gaining both knowledge and acceptance of them. The increased number of funds and fund managers has led to a broader spectrum of solutions and experienced service providers. This collective experience and know-how have enriched the Swedish fund formation landscape. Regulatory authorities, such as the Swedish Financial Supervisory Authority (Finansinspektionen), are well-versed in private funds, ensuring efficient handling times and administrative processes.

Similarities across illiquid asset classes

Notably, the structural features of Swedish fund structures for illiquid assets closely resemble those of private equity funds. Whether it’s real estate funds or certain credit strategies, the core structural components remain largely consistent. This uniformity simplifies the fund formation process for managers and investors alike, fostering a sense of familiarity and predictability.

Taxation challenges 

One of the primary challenges faced by the local private fund industry in Sweden pertains to the taxation of team members based in the country. However, it is worth noting that foreign fund structures seem to be more exposed to these taxation risks than their Swedish counterparts. This factor should contribute to the attractiveness of Sweden as a hub for private fund formation.

The future of Swedish fund structures 

Considering the current landscape and the prevailing benefits, we anticipate a continued interest in Swedish fund structures. The established presence of Nordic fund teams in Stockholm, coupled with the accommodating regulatory environment and the growing acceptance of these structures, positions Sweden as an ideal choice for fund formation. The track record of successful fundraisings and the ability to adapt to various asset classes further solidify Sweden’s role as a thriving hub for private equity and fund formation.

Conclusion 

Sweden’s private equity and fund formation industry has thrived in recent years, with an increasing number of firms choosing Swedish fund structures. The robustness of these structures, coupled with a favourable regulatory environment, has driven innovation and garnered acceptance among investors and institutions. Challenges related to taxation for team members are being managed effectively. Looking ahead, Sweden is poised to maintain its status as a sought-after destination for private fund formation, offering a supportive ecosystem for the growth of the private equity industry and other illiquid asset classes.