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Industri Kapital goes back to its roots

In the past two years, Swedish private-equity house Industri Kapital has endured a protracted and difficult fund-raising process for its fifth fund, which ultimately closed at just a third of the original e2.5 billion target size. But after responding to investors' concerns by returning to its small to medium mid-cap focus and achieving a string of highly lucrative exits this year, the future looks brighter.

INDUSTRI KAPITAL IS one of a small group of successful, large non-UK and non-US private-equity houses operating in Europe. With e3.5 billion in funds under management and specializing in mid-cap investments in northern Europe, the Stockholm-based firm has been impressing investors and rivals with a standard 20% internal rate of return on deals since its foundation in 1988 by former Esselte Group finance director Björn Savén.

It's not the kind of firm that one would expect to struggle to raise new funds from outside investors at a time of flat returns in conventional asset classes.

Industri Kapital's difficulties in closing its most recent fund provide crucial lessons even for private equity managers of long standing with good track records. Investors are becoming increasingly wary over key-man issues, fees and changes to previously successful investment strategies.

Savén raised IK's first fund of e108 million in 1989 and has since established the firm as one of the leading names in private equity in Europe. "We create a higher earnings growth than most of our rivals," says Savén. "In terms of the firm's size and what we have done with the deals, my expectations have been exceeded."

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