Private Equity

In 2009 OPM expanded its operations to include evaluation and analysis of international private equity where much of the technology developed for the evaluation of hedge funds also can be applied.

Private equity has traditionally been reserved for the big pension funds that can handle the extremely high minimum investment and the long lock ups periods. The focus of OPM is instead on publicly traded private equity, listed private equity, which offers significantly improved liquidity.

Today OPM offers a fund (OPM Listed Private Equity) which is fully focused on this niche and thereby offers daily liquidity.

The business area is led by Tom Berggren with extensive experience in the industry, including over ten years as the Managing Director at the Swedish Private Equity and Venture Capital Association.

The investment approach is based on a combination of manager evaluation and traditional equity research.

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» What is Private Equity?

What is Private Equity?

Private equity firm invests in unlisted companies with active ownership and a determined investment horizon.

Private equity is an ownership model for value creation, for each investment there are development and growth plans. Successful players often have highly developed industrial networks and extensive experience in business development.

Private equity has historically been an asset class with very good returns. Many institutions currently have significant allocations to the asset class. One example is the Yale University Fund which has just increased the allocation to private equity from 21% to 26%.

» Investment process

Investment process

OPM follows a structured process for seeking private equity teams with strong track record. The second part of the process relates to the analysis and valuation of the balance sheets. An important part of this sub-process is to follow the funds value patterns over time, which have proven to have wide variations. The methodology to evaluate the listed private equity companies can be likened to a combination of traditional private equity evaluation and traditional fundamental valuation of shares.

OPM Listed Private Equity invests in a diversified global portfolio of 25-30 companies. The emphasis is on direct investing companies. Geographically, the fund has a global focus with emphasis on Europe and North America.

The investment process is developed from three disciplines: traditional PE-analysis, stock analysis and process-driven management evaluation.

Depending on the market and the economic situation, OPM Listed Private Equity has the possibility to switch between different private equity sectors and companies with less sensitivity to the economic situation. An important part of the risk management is to monitor the liquidity of the shares and their financial condition. A very large diversification can be achieved since all the private equity firms, in which the fund is invested in, also are invested in a number of portfolio companies.

» Risk management

Risk management

The fund’s risk (measured as annual standard deviation of monthly price movements) shall, normally, be in the range of 15-25 percent from a rolling 48-month calculation which is approximately the same level of risk as stocks.

Standard deviation is a statistical measurement describing distribution in a quantity of data. The measurement shows how much the fund’s NAV per unit has fluctuated (or can be expected to fluctuate) in relation to average return over time. A high standard deviation means major variations and therefore high risk, low standard deviation means small variations and therefore low risk.

In accordance with the law, the fund may not have a diversification of less than:

  • No holding may exceed 10% allocation
  • Holdings over 5% may not exceed a total of 40% allocation

Risks must be continuously monitored and documented. This documentation must then be filed. The documentation should at least consider the following:

  • Diversification
  • Number of funds
  • Verify that no holding is over 10% allocation
  • Control that the holdings over 5% in total doesn’t exceed 40% allocation