Value creation analysis for private equity funds in Norway 2022

The lifetime of PE funds is limited, and they normally take ownership in companies for a defined period of 5-15 years. This means that the size of the portfolio owned by PE funds will vary over time. In periods when many investments have been made, the portfolio will grow significantly, and in periods with many exits, it will be reduced. In this analysis, we take this source of variation into account by following the same portfolio companies over time. In other words, from year to year some portfolio companies will be added, while some disappears from the portfolio we analyse.

In the figure below, however, we have compared the entire portfolios from previous years against today's portfolio, measured by the number of employees. The number of employees in the portfolio companies was 69,000 in 2008 and has been relatively stable since then. From 2019 to 2020, many companies left the portfolio, resulting in a decrease in the number of employees from 77,000 to 73,000. After significant both organic and inorganic employment growth in 2021, the growth in 2022 was more moderate. In total, the number of employees in the portfolio companies was 89,800 in 2022.

After a weak development in 2020, value creation in the portfolio picked up strongly in 2021, coinciding with the strong growth in employment. Value creation growth continued in 2022. Unlike the growth in 2021, the growth in 2022 was more organically driven. This means that the growth was to a greater extent a result of existing portfolio companies, rather than new companies being added to the portfolio. The graph below shows the historical development of value creation in the portfolio. As we can see, value creation grew relatively steadily from 2008 until 2012, before it then declined slightly each of the following four years. The decline was particularly due to lower activity in the offshore supplier industry. From 2016 to 2019, value creation grew considerably, from 35 to 64 billion. From 2019 to 2020, value creation fell as a result of many companies dropping out of the portfolio, combined with a moderate decline in value creation among the portfolio companies.