COVID Calling - Capturing Investment Opportunities Within the Private Equity Market During the Pandemic. A case study on the joint venture Cinder Invest, initiated by SEB & AMF

Abstract: The paper builds on a single case study on Cinder Invest, a joint venture (JV) investment company backed by five prominent financial institutions in Sweden during the pandemic. The case study contributes to the scarce prior research regarding the investment opportunities that the economic disruption caused by COVID-19 has given rise to within the private equity (PE) market and how actors within the market have adapted their investment strategies to take advantage of them. We find that a negative demand shock caused by the pandemic gave rise to new investment opportunities- a previously inaccessible segment of well-managed Swedish companies with a positive long-term outlook became accessible at comparatively low valuations. In designing an investment strategy to take advantage of these investment opportunities, Cinder Invest did not only have to consider how they could capture the full return potential of the investments and how to ensure healthy risk-adjusted returns. The strategy also had to be adapted to the financial needs that the targeted companies had as a result of the pandemic and the reluctance of the targeted segment to give up ownership and control. A comparison of the designed investment strategy to that of the traditional investment strategies within the PE market highlights that all of the traditional strategies lack at least one component essential to exploit the investment opportunities described in the paper. The paper thus sheds light on the fact that although the traditional investment strategies within the PE market have been used in the bulk of the deals historically, they have not been well-suited to exhaust the investment opportunities that the pandemic has given rise to. Instead, we find that the pandemic has given rise to investment opportunities calling for an investment strategy that differs from the traditional ones within the market.