Swedfund annually evaluates a wide variety of investment proposals. The initial assessment examines whether the proposal is consistent with our investment strategy and criteria, and how our investment can contribute to attainment of the global goals. We carry out an overall evaluation of the country, the business and its business plan, strategic partners and our potential role. In every investment that we make, our role must be additional, which means that we provide resources which are crucial to the development of the business that would otherwise not have been available.
After the initial assessment, the investment team draws up a proposed decision, the “concept clearance”, which is then presented to Swedfund’s Investment Committee. Swedfund’s Investment Committee, which has both an advisory and a decision-making role, decides whether to proceed with the investment proposal and carry out an in-depth analysis. The Investment Committee is chaired by Swedfund’s CEO and includes an investment manager, a director of strategy & communication, a director of special operations, a chief lawyer and a senior expert in sustainable development. The investment Committee and the investment team discuss the key risks in the investment which must be analysed during the due diligence process.
If the committee decides to proceed, the investment proposal will proceed with a due diligence. A thorough analysis is then carried out in which many different factors are examined, including the business concept, business plan, market, financial history and forecast, investment calculation, partners, legal aspects, expected societal development results and sustainability risks and impacts, including the environment, employment conditions, human rights and corruption. During the due diligence phase, the investment team meets representatives of different functions of the company in order to gain a deeper understanding of the company and the processes, routines and documents that they have shared with Swedfund. If necessary, external expertise is hired to examine specific issues. Before the meeting, the company will be asked to complete a comprehensive questionnaire on environmental, social and corporate governance related issues. The due diligence process forms the basis for the information that is used in the decision-making process. This includes an ESG Action Plan (ESGAP), which sets out the applicable requirements and also forms part of the investment agreement. It describes the changes or actions that the company need to implement in order to meet Swedfund’s sustainable development requirements.
When the due diligence process is completed, a screening meeting will take place during which the Investment Committee will decide whether the investment meets our requirements and is ready to be presented to Swedfund’s board of directors. If the investment is not approved at this stage, it may be because new information came to light during the due diligence process. It is not uncommon for new questions to be raised, which the team then examines in the final stage of the due diligence process. From 2018 onwards, we have also established a clear strategy for exiting investments.
Decision by the board of directors
The initial phase is concluded with the investment team presenting the investment proposal to Swedfund’s board of directors, which then reaches a decision. If the investment is given the go-ahead, an agreement will be negotiated. The investment agreement includes not only legal conditions, but also sustainability and reporting requirements.
Once the agreement has been signed and the funds have been disbursed, the work that was begun earlier during the investment phase will continue. We work actively and continuously with our portfolio companies, focusing on commercial and sustainability issues which were identified during the due diligence phase. During the period for active management, which usually extends over 7-12 years, an ongoing dialogue and close contact are maintained with the portfolio companies in order to monitor their performance, goal attainment and contractual conditions, both through visits, active board work and dialogue and through their annual report (the Swedfund Sustainability Report). Both internal audits and third-party audits are conducted. The Senior Investment Manager is responsible for following up and ensuring that the companies comply with the agreed conditions, relevant parts of our policies and ESGAP. Within a three-year period from the date of disbursement, companies must achieve Swedfund’s strategic sustainability goals. To help companies attain these goals, we can allocate funds in the form of Technical Assistance (TA), which can for example be used for training or consultancy.
Swedfund is a long-term financing institution, but it is not a permanent owner. We end the investment and the partnership either through selling our shareholding, through repayment of the loan or through expiry of a fund’s term.
The exit phase generally starts when Swedfund considers the goals that were established for the investment to have been achieved or when we cease to be ‘additional’. Selling a portfolio company on the markets in which Swedfund operates is not the same as selling a company in Europe. Much more effort is required, as established processes are often lacking. In most cases, custom solutions are necessary in order to find a buyer and Swedfund often plays an active role in finding a solution in this context.
Ahead of the exit process, the portfolio company is analysed on the basis of Swedfund’s three pillars. During this process, we consider whether further initiatives are necessary. An exit report is prepared for each closure, where we analyse what we have learned and what relevant knowledge and experiences we can take with us into future investments. The report will also clearly explain how the investment has taken into account our three pillars. Everything in one step to ensure a responsible exit.