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CFO Profile: Nordic Capital’s Klas Tikkanen

by The Drawdown 7 September 2017

Klas Tikkanen joined NC Advisory, advisor to the Nordic Capital funds, in 2011 as CFO, bringing with him a wealth of experience from CFO roles at industrial companies including Relacom and Dometic.

The Drawdown (TDD): Given your professional history, what is your experience of being a private equity CFO?

Klas Tikkanen (KT):
My background is that of an industrial CFO, for producing industrial companies – the ones that private equity funds would normally own – and that has shaped my view of what CFOing and COOing in the funds world should look like.

The industrial CFO, as opposed to a fund-level CFO or COO, has historically tended to be a bit more hands-on. It involves a large influx of fairly small decisions that have to be taken on a continuous basis, all the time.

It can be a factory somewhere in the world that has burnt down, negotiating with insurance companies, staffing decisions, remuneration policies in Australia – anything really, that by themselves don’t tilt the company’s value all that much, but where the trick is to handle the sheer volume, get it right on average and accept a certain percentage of mistakes. Typically, you will have a limited fact base and limited impact with every one of these decisions.

In private equity, CFOing has been very different. Here you are both engaged in large investments decisions demanding deep analysis, much higher level of accuracy and understanding of different businesses. At the same time we are leading a large organisation of investment professionals demanding all types of resources to be able to do our best in finding, developing and exiting companies. It is the combination that makes the job so interesting.

Having said that, I think the industrial CFO and that world is, in some respects, ahead of private equity CFOing and COOing. They have been straddling a widening gap between compliance, regulatory and accounting issues on the one hand, and the commercial needs of the operations on the other hand, for a longer time.

When I look at the private equity world and my peers in the industry, I think many more of those individuals come from a regulatory or accounting background, and much fewer have a commercial background. That also goes for the staff supporting the CFO or COO.

There’s a widening gap in the private equity world between regulatory requirements and commercial requirements in the business. AIFMD doesn’t really make any sense whatsoever from a commercial perspective. I think that whole law doesn’t work for PE, it was designed for hedge funds and niche funds. Then you have Mifid II, BEPS, FATCA – there’s an onslaught of regulatory issues targeting private equity that don’t make any sense for us, and on the other hand you have real business needs that are increasing where I think the CFO or COO can play a role.

TDD: How can private equity CFOs and COOs better bridge that gap?

KT: In the private equity world that I’ve been working in for the past six years, I think CFOs need to straddle that divide much better. We saw the same thing on the industrial side – Sarbanes-Oxley and a lot of other rules and regulations that made the world more complicated from a regulatory standpoint – but in that world, CFOs have evolved from the traditional bean-counter or regulatory person, to a true deputy CEO or commercial role over the past 20 years. I felt that was the role I had when I was in that part of the industry, and I was a bit shocked when I moved into the PE world where I felt CFOing was a bit behind the curve relegated to the back-office side of things.

However, I’ve seen a lot of my peers moving in the commercial direction, being sucked there by the commercial people in the private equity firm, or simply by seeing this divide and working with both to connect the two worlds. That has shaped my work over the last six years.

At the same time, you can’t just focus on either side. You cannot truly handle compliance without embedding a lot of that into the commercial side. And embedding of compliance can be truly valuable from a commercial perspective. I’m trying to work more and more with various ways of improving how we operate in both of these worlds. One example: our GP requires a project initiation before it allocates a budget, and requires a budget for it to pay invoices. This helps our mid and back office to know when a new project starts and engage early on with assessing and supporting on ESG, tax, compliance etc. At the same time, it helps us to control and contain deal related costs, to the benefit of the Fund’s investors and owners.

TDD: Coming in as an outsider to the PE industry
, where firms are traditionally dominated by a handful of deal partners, how do you make sure you’re in a position where you can affect operational change at the firm?

First of all, you have to get a seat at the big table in the organisation. For that, you need the qualifications and then earn and maintain the respect of the deal-oriented partners.

It’s a challenge in any private equity firm. If you go to an industrial business, everybody knows there’s a CFO; what is to be expected from that role and that it carries a certain amount of weight in the organisation. The ground has already been laid over the past few decades for an industrial CFO.

For a private equity firm, the CFO role has historically been more of a chief compliance officer or chief accountant, rather than a deputy CEO-type role. I love accounting, so I shouldn’t diminish it in any way, but the PE CFO has been more of an admin, accounting and compliance role and not commercial, so the foundation hasn’t been there.

In general, I think there is a challenge to get a seat at the table. I respect all of my colleagues out there, but do feel that challenge is real.

In our firm, the groundwork was largely done already for me: Joakim Karlsson and Kristoffer Melinder were taking over as co-managing partners as part of a plan that had been discussed for years, and they had mentally prepared for changes they wanted to enact at the firm.

I had been in contact with them on an ongoing basis during these years to discuss me potentially joining, initially quite loosely, but gradually more concretely. As they became co-managing partners, a plan had emerged already for what they wanted to achieve, and part of that was that they wanted someone with my profile – a CFO – to support them in their transformation of the firm. They wanted someone who would be much more involved in managing all parts of the firm, including commercial aspects.

So for me, it was easier and on top of that, I think NC has a very welcoming and earnest internal culture.

TDD: In the six years since you joined, you’ve become one of the prominent voices and faces of the firm – how did that happen?

In joining, I had no experience from fronting media. Meanwhile, I’m very driven to be a professional person. That’s feedback I’ve gotten consistently throughout my career, and it’s been a bit of a badge of honour for me to deliver what is needed as opposed to what I’m able to deliver.

Coming to NC, I noted that our managing partners were good at handling media, but have a much lower time allocation for that than what I’ve seen before in my industrial career.

Conversely, the media interest in us as an organisation is much higher than I’m used to. So there was a big need sometimes for media spokesperson, and a lower time allocation for it from the managing partners. There was a gap that I felt very strongly that we needed to fill.

In some cases we managed to inspire some of our partner colleagues to fill that gap, such as Fredrik Näslund when it comes to healthcare and welfare services. In other areas, I’ve stepped up to the plate on a number of occasions. Sometimes I have taken a bit of heat, while other times it has landed well. Regardless, overall I feel it’s been positive for Nordic Capital – as well as for the industry.

I believe that any organisation needs to have an appropriate level of transparency towards journalists, politicians and the society around us. Historically, private equity has been poor at this and I felt that we should contribute to reversing that trend.

TDD: One of the debates in which you’ve been a loud voice was the Swedish carried interest tax saga…

As a CFO, it obviously fell on my desk to handle the tax cases from the get-go. The cases had just begun when I joined. But no one at NC, or at other PE firms, was publicly talking about the tax cases.

In the absence of any comment from anybody in the industry on any topic within tax, the media and politicians were allowed to speculate almost freely and with extremely low accuracy about what private equity was – both in general and in relation to taxes.

Rumours were allowed to flourish and they took on a life of their own. Working with the tax case, and with my background, I could see that a lot of these things were completely false and being used to serve purposes for various stakeholders such as the Swedish leftist party, which wanted to abolish profits in the welfare sector.

So I felt very strongly that somebody had to stand up and speak out to set the record straight; that it would probably be good for the industry.

We had done nothing wrong, we had openly declared every single penny in the last 20 years, the partners had onshored profits in Sweden, on an ongoing basis, and been taxed in Sweden at 25%. The facts were on our side and it would be reasonably easy to explain and resolve unanswered questions .

All of these things converged, so I had long discussions with some journalists I knew, developed our messages, and then booked lunches with a number of journalists to tell them about private equity and tax. It all came out very well.

Once I started getting traction, I think it was easier to convince my colleagues here that I should continue doing so.

It’s absolutely had a large positive impact on our brand name, our reputation and the general perception of Nordic Capital, and I think it’s had a positive impact on the whole industry. I should mention that at around the same time, people like Segulah’s Gabriel Urwitz and EQT’s Johan Bygge also engaged on this topic, and we coordinated with the board of the SVCA, our industry association here in Sweden

I have taken some heat for it, but it has been worth it.

I think we have gotten past the negative sentiment, and built a positive view on private equity. I can definitely feel that when I visit Riksdagen [Swedish Parliament], go to political summits, or participate at industry functions.

TDD: Speaking of tax-related topics, Nordic Capital has previously said it has no intention of domiciling funds in Sweden anytime soon – what is the reasoning behind that position?

Domiciliation has been a big issue. There have been a lot of misconceptions surrounding Guernsey, Jersey and other offshore places, though we’ve been able to correct some of those misconceptions.

A lot of us in the industry have contemplated onshoring, either to Luxembourg or other traditional fund domiciles, or even to Sweden. However, I think Sweden has become less attractive as a fund domicile. It’s an attractive investment destination, but I don’t see any reason why the fund would need to be domiciled here.

Jersey is an excellent domicile for us and others. A lot of Swedish politicians have expressed that they would view it very positively if we domiciled in Sweden. Certainly, the direction of travel in BEPS has been towards looking more and more at headcount and other measures of substance, and also emphasise the notion of substance more, which would count in favour of onshoring in Sweden.

However, the current Socialist government in Sweden has made so many weird and negative decisions over the last two years, that it would probably dissuade most people from onshoring to Sweden – and it has dissuaded Nordic Capital from doing so. We have decided that we will not in the foreseeable future onshore to Sweden.

We’ve looked at it carefully, invested substantial time and energy and external consultancy resources into investigating Sweden as a possible domicile, but it is too risky, too unclear and has too many unknowns, while the potential consequences could be quite negative. So we will remain on Jersey for the foreseeable future.

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