Sweden's Riksbank has published a Staff Memo analysing private equity from a financial stability perspective, covering Swedish portfolio companies, private equity firms and funds, investors, and lenders. The analysis finds that, despite high leverage and limited transparency in parts of the market, financial stability risks in Sweden appear limited at present. The memo notes that Sweden hosts several large, globally active private equity firms financed largely by international investors, with substantial activity in Swedish companies. An econometric study of around 4,000 Swedish leveraged buyouts (1990–2022) finds portfolio companies remain materially more leveraged for several years, with short-term debt and interest costs around 20 per cent higher than comparable firms, but without evidence of a higher bankruptcy risk during the period studied; vulnerabilities could increase if interest rates rise sharply and stay high. Swedish banks’ lending to private equity-owned firms has declined and been partly replaced by private credit funds, reducing direct banking-system exposure but increasing opacity and potentially raising rollover risk if private credit funds retrench. At the fund level, buyout funds regulated in Sweden show higher gross leverage than venture funds (close to 1.5x on aggregate, driven by a small number of highly leveraged funds), with leverage patterns consistent with bridge financing such as revolving credit facilities, while net asset value loans are described as a riskier form of fund borrowing. On the investor side, institutional investors dominate; estimated private equity commitments are around SEK 120 billion for Swedish insurance corporations and pension funds and SEK 310 billion for AP funds, with private equity comprising about 3 per cent of ICPFs’ combined portfolios and 18 per cent for AP funds, and many funds being mature with limited remaining dry powder, which mitigates capital-call liquidity risk. The memo also flags that growing retail access via fund-of-funds could create future risks, particularly given valuation opacity and the potential for withdrawal pressure in open-ended structures, while noting that available data do not yet allow a comprehensive assessment; as a Staff Memo, the views are those of the authors rather than the Riksbank’s official position.
Riksbank 2025-02-06
Sweden's Riksbank staff memo finds private equity stability risks are currently limited but highlights leverage and transparency vulnerabilities
Sweden's Riksbank published a Staff Memo analyzing private equity's impact on financial stability, finding limited risks despite high leverage and opacity. The study highlights that Swedish banks' exposure to private equity has decreased, with private credit funds filling the gap, potentially increasing rollover risk. Institutional investors dominate the sector, with significant commitments, while growing retail access could pose future risks due to valuation opacity and withdrawal pressures.