Americans, the world’s leading instant satisfaction people, know it–more is indeed more. When it comes to getting Finland back on track, more and bigger Finnish-based investors is what we should be looking for. Then there is the question of regulation where we are maybe finally waking up to the reality that less may indeed be more. On both issues we have regrettably been going in the opposite direction for quite some time. Let us explore these issues a bit more.
Number of investors
The number of investors in any market drive liquidity and valuations. Yet over the last decades the number of pension foundations has decreased, and certain well-meaning people promote the idea of one pension insurance company. If you forget the balance sheet and focus on income statement you can easily put together a well-argued case for less costs in the pension system. This, however, quite completely overlooks the critical importance of pension insurance companies as investors in the market. It is difficult to fathom a substantial private placement or IPO where one institution would make or break the deal. The bigger the company the bigger also the smallest ticket size it will invest. Trying to raise a first time VC, growth or PE fund when the minimum investment ticket for an institution is 50 million euros and maximum ownership is less than 20 per cent becomes tricky, to say the least.
We simply need bigger Finnish funds.
Remember mid 1990s? CapMan, Altor and IK used to be of similar size. Now the Swedes manage fund sizes that are in the billions with global investment agendas and Finnish PE funds remain below 500 million with mostly domestic investment policy. For an equity ticket +100 million euros the buyers are therefore mostly foreign. Due to limited fund sizes the Finnish VC funds (save for the one-off Lifeline SPAC Canatu deal) have mostly been unable to write the bigger + 50 million euros tickets their investee companies at the verge of global breakthrough need. We simply need bigger Finnish funds.
The state is the biggest portfolio owner in Finland. The current government is, for a reason, looking into off-loading some assets where the state ownership is less needed, and money could be spent to facilitate new growth. At the same time, we should be wary of replacing Finnish cornerstone ownership with dispersed global investment funds without active management aspirations. We therefore desperately need legislative and fiscal measures that support the creation of Finnish based owners having active, hands-on ownership agendas. The idea of rich domestic companies with poor local owners is simply a fairy tale.
There is a substantial difference between Sweden and Finland as to the number of households that invest in public markets. This means more successful IPOs and liquidity in the market in Stockholm. Measures that would encourage Finns to move a bigger part of their legacy savings accounts’ funds into the Helsinki Stock Exchange would be needed. Opening VC and PE funds to these private investors is also worth looking at. The latest real estate fund problems, however, highlight the fact that alternative asset investment vehicles should preferably not have liquidity in the vehicle itself but on the market.
Regulation
A fellow board member wonders how the board materials in a listed bank run to 1000 pages. Green transition investments are often less than the costs of environmental reporting. Companies are unwilling to list, and the size of unlisted markets has fundamentally exceeded public markets. European regulation is an export product. Why have Finland and EU at large become overregulated? The simplest answer might not be too far from the truth. The parliamentary toolbox consists of making new laws. Every time there is a substantial crisis of almost any nature (economic, health care, education etc.) people cry out for actions and politicians are inclined to act by passing new laws as a solution. European legal systems are mostly built on this model. Every election is about the opposition offering “change” and this change often means new legislation. At the same time, we do not have the money to carry out these reforms or even support the existing frameworks. Finland has a great legal system that is completely underfunded. The result? People wait for years to have their cases heard and businesses struggle to get timely permits for new projects.
So, when you want more, be careful to define more of what.
