More Swedish Unicorns with Norwegian Capital

"We see more and more indications that a greater share of value creation takes place within the unlisted space," write Tangen and Wolden Bache in the letter.

The Norwegian Oil Fund is the world's second-largest sovereign wealth fund with NOK 13,000 billion in assets. It's a fine deal for the Norwegian state: in 2021, the fund returned NOK 1,580 billion, i.e. about SEK 1,665 billion — significantly more than Sweden's entire national debt.

If the Oil Fund decides to invest just one per cent of its AUM in unlisted assets, it means that nearly SEK 140 billion will be deployed in the unlisted market — twice as much capital as the entire Sixth AP Fund manages. If the mandate instead is that one per cent of the annual return is to be invested in unlisted equities, this means that close to SEK 17 billion will be added to the unlisted equity market every year thereafter. This should be compared to the fact that approx. SEK 3 billion was invested in 4-600 growth companies in Sweden throughout 2021. Regardless of the mandate, it is an almost astronomical figure.

It is not unlikely to assume that a fairly large share of this Norwegian capital will be invested in Sweden. There are three reasons underlying that assumption. First, Sweden is a veritable growth factory when it comes to fast-growing technology companies. Second, Sweden is both culturally and geographically close to Norway. The Oil Fund is already today the sixth largest owner on the Stockholm Stock Exchange. And third, valuation multiples are fairly low in Sweden, compared to e.g. the USA and Great Britain, which is a good breeding ground for future value creation. This is also the main reason why the Oil Fund is now seeking to expand its mandate — they simply do not want to miss the train.

Sweden is one of the most interesting countries for investments in unlisted growth companies. According to the EU Commission (and several other actors), Sweden is the EU's most innovative country. We also have by far the largest number of unicorns (i.e. young growth companies with a valuation of more than one billion dollars) of the Nordic countries — of 321 unicorns in Europe in 2021, 21 have been founded in Sweden compared to only four in Norway. And the Wharton School of Business wrote a few years ago: "What do Silicon Valley and Stockholm have in common? Fast-growing technology companies valued at billions of dollars. After Silicon Valley, the Swedish capital produces the highest number of so-called "unicorns" per capita than any other global city."

If the Oil Fund chooses to put one per cent of the annual return in unlisted equities and invests 10 per cent of it in Sweden, the Swedish capital market for unlisted growth companies would grow by 50 per cent in one fell swoop. It is a complete revolution and will forever change the conditions for growth companies in Sweden.

It is most likely that the Oil Fund will invest indirectly through VC companies or various funds with a focus on unlisted equities, or in syndicates together with other professional investors. As a consequence, the risk will be significantly reduced for remaining investors, which in itself will attract more investment. The result is a leverage effect in a way that we have probably never seen in Sweden. And although the Oil Fund will apply strict regulations both in terms of focus and size, its mere emergence will free up capital for other companies in the system that does not necessarily fit the Oil Fund's investment strategy.

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Saturday's announcement is the best news of the year. In a situation of increasing interest rates, a volatile equity market, cautious investors and recession looming around the corner, it was just what we needed: a piece of really good news!

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Stockholm on January 9, 2023

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Sven Otto Littorin

Partner, Stadsholmen Equity