Advokatfirmaet BAHR AS | Jonathan Uggedal | Andreas Sakshaug | Peter Hammerich
European Union | Norway | OECD | United Kingdom
This article is an extract from Lexology In-Depth: Private Equity – Edition 14. Click here for the full guide.
Introduction
During the past 25 years, the Norwegian private equity market has matured and become more internationalised. One contributing factor has no doubt been the establishment of Argentum Fondsinvesteringer AS, a government-owned investment company established in 2001. Since its inception, Argentum has invested in several emerging fund managers, including FSN Capital, Norvestor, HitecVision and NorthZone – all of which emerged around the turn of the millennium and have since grown to become successful managers, attracting capital primarily from foreign institutional investors. In recent years, new sponsors have continued to emerge, often as former team members of established sponsors break out to found own management companies. A recent example is Turnstone Private Equity AS, which was established in 2023 by former members of Argentum’s secondary team.
Another important factor may have been the implementation of the Alternative Investment Fund Managers Directive (AIFMD) and the regulation following in its wake. Before this, the Norwegian private equity sector was unregulated. Regulation and prudential supervision have contributed to standardisation and institutionalisation of the actors in this sector. With widening mandatory disclosure and reporting obligations under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, we expect the difference between fully authorised and smaller registered alternative investment fund managers (AIFMs) to become less relevant over time in many aspects.
Being a small country, the Norwegian economy is relatively small with a limited number of sponsors. Naturally, year-on-year variations in fundraising level may therefore be significant. Illustratively, the amount of capital raised by Norwegian sponsors1 in 2023 decreased by 26 per cent compared with 2022, at 29.5 billion Norwegian kroner raised.2 Still, as a long-term trend, the Norwegian fundraising level has steadily increased over time, which may in part be attributed to increased interest from foreign investors due to the significant depreciation of the Norwegian krone over the past decade.
The duration of fundraisings may vary significantly, depending on a number of factors. The economic uncertainties caused by high inflation and elevated interest rates, have generally made fundraising more time-consuming as investors are more wary, and sponsors now typically hold more closings and for longer than 12 months.
Year in review
The overall trend has been towards larger fundraisings, with firms having established their track record and a more international investor base. While more firms came to market in 2023 than in previous years, 2024 saw a decrease in the emergence of new managers. Although the barrier to entry for new sponsors is low from a purely regulatory point of view, significant fundraisings by newcomers are the exception rather than the rule. Newcomers will rarely be able to demonstrate any track record, unless they are spin-offs from previous sponsors or internal asset management departments, an example being Turnstone Private Equity AS who since its inception in 2023 has successfully raised more than 5.4 billion Norwegian kroner across three separate funds.
There were several notable fundraisings by Norwegian sponsors in 2023 and 2024. Examples include Equip Capital and FSN Capital who both raised their first continuation vehicles at €306 million and €588 million, respectively, Verdane Edda III, Norvestor IX, Longship Fund III and Bluefront II.
In 2024, the Norwegian regulatory landscape saw several important and long-awaited developments as the EU rules on key information for packaged retail and insurance-based investment products (PRIIPs) and cross-border distribution and marketing of collective investment funds (CBDF) entered into force in Norway on 1 October 2024, following several years of delayed implementation. The integration of the CBDF into Norwegian law will further streamline the cross-border operations of funds, also aligning Norway’s pre-marketing regime with that of other EU countries, thereby eliminating uncertainties regarding Norwegian sponsors’ ability to pre-market funds established in Norway within the EU. Unfortunately, however, non-European Economic Area (EEA) managers may no longer pre-market in Norway without first applying for a marketing authorisation.
Further, the growing interest towards establishing European venture capital (EuVECA) funds has continued as Norwegian sponsors have become familiar with the benefits provided by this regulation – both in terms of being able to market the fund across the EEA with light regulatory requirements as well as the opportunity to market to non-professional investors under certain conditions. This is largely due to the ability for registered managers to utilise the EuVECA regulation without being authorised under the Norwegian Alternative Investment Fund (AIF) Act.
Legal framework for fundraising
Norway is a Member State of the EEA. As such, the main body of legislation regulating the financial sector consists of European Union legislation transposed into Norwegian law. Management and marketing of private equity fund managers are regulated under the AIF Act, which transposes the AIFMD.
At the fund level, private equity funds are unregulated in Norway. Closed-ended funds and open-ended funds investing in asset classes other than financial instruments and bank deposits (e.g., real property, commodities (directly and not in derivatives)) generally fall outside the scope of the Norwegian AIF Act. The EU-regulated fund types: EuVECA funds, European social entrepreneurship funds and European long-term investment funds (ELTIFs) were transposed into Norwegian law in 2023. In the same year, several enhancements were made to the ELTIFs’ regulation at the EU level, often referred to as ‘ELTIF 2.0’. These amendments have not yet been implemented into Norwegian law, and considering the historical delays in adopting EU legislation, it remains uncertain when the advancements of ELTIF 2.0 will become available to Norwegian fund sponsors. Similarly, the revisions to the AIFMD, known as ‘AIFMD 2.0’, are unlikely to be enacted into Norwegian law for some time, especially considering the April 2026 deadline for EU Member States to implement these amendments.
There are, to date, 33 EuVECA funds and only one ELTIF established in Norway.3 The limited adoption of ELTIF/credit funds, may be attributed to the fact that ELTIF funds (if not transparent) are subject to general Norwegian tax rules that entail ongoing taxation of interest income at a 22 per cent tax rate at the fund level. Several other jurisdictions offer fund structures where such interest gains are not taxed, making it challenging for Norwegian-based credit funds to compete on ‘absolute’ returns.
The preferred jurisdictions for the establishment of funds by Norwegian firms have traditionally been Norway for smaller funds and the Channel Islands for larger funds by sponsors that also target non-Norwegian investors. The implementation of the AIFMD started a trend, which was later intensified by Brexit, whereby several fund managers moved their new funds onshore to the EEA or established parallel structures inside and outside the EEA. For Norwegian sponsors, Luxembourg has become the most natural jurisdiction for such funds, with several fund sponsors having made this choice for their most recent funds (e.g., Equip Capital SPV and Norvestor IX).
In terms of legal form, the preference has been for companies that are tax transparent for the purposes of Norwegian tax law, namely limited partnerships, with a general partner having invested an amount into the partnership directly. Smaller Norwegian private equity funds, however, are often established as Norwegian private limited liability companies.
Key legal terms for private equity funds correspond to those of market standard private equity funds established as limited partnerships. Outside commercial considerations, such as a team’s potential for deal sourcing, prospective investors may be expected to be concerned primarily with the correlation between total fund size and management fee, risk alignment or carried interest investment by the team, key man provisions, length of investment or commitment period and length of term, conditions for extending the investment period or term, as well as removal provisions. Fundraising in the institutional market typically sees extensive negotiations over key terms.
It is standard market practice and a clear investor expectation for funds to include a most-favoured nations clause in respect of side letters. For authorised managers, this is also likely to be required under the AIF Act, as is the obligation of fair treatment of investors, whereby any preferential treatment accorded to one or more investors shall not result in an overall material disadvantage to other investors. Side letters represent a major compliance burden for managers, as such bespoke demands are becoming more extensive and may often include more discretionary elements, such as environmental, social and governance (ESG) reporting. It remains to be seen whether cost-saving measures and an increased compliance burden in general will force a larger degree of standardisation and reduce the current willingness of sponsors to negotiate side letter regulation. The SFDR and the Taxonomy Regulation will work to standardise ESG disclosures, and general provisions will likely replace bespoke terms in side letters on this point (see ‘Regulatory oversight and registration obligations’).
Authorised alternative fund managers are subject to statutory disclosure requirements to both investors and competent authorities in respect of both pre-investment disclosures and ongoing disclosures. The SFDR has introduced statutory disclosure requirements also for registered alternative fund managers. The SFDR and the Taxonomy Regulation entered into effect in Norwegian law as of 1 January 2023. Norwegian managers targeting investors within the European Union are required to comply with the rules as implemented in such states in respect of both the SFDR and the Taxonomy Regulation. Disclosures are also market-driven, and investors have typically required more extensive disclosures and reporting obligations than those required by law alone.
The AIF Act imposes certain requirements in respect of ongoing reporting to investors and requires periodic reporting to the competent authorities. Institutional investors will typically have specific reporting requirements, such as insurance companies and Norwegian pension funds subject to Solvency II capital requirements, and be obliged to adopt the look-through approach to the underlying investments of a private equity fund. Good-quality financial reporting is also required by fund of funds investors that have become large investors in private equity funds.
Marketing of interests in private equity funds is regulated under the AIF Act. The AIF Act and its marketing rules have had a substantial impact on the Norwegian market. While marketing of unregulated funds previously could be made without specific restrictions (other than prospectus rules, general marketing law and rules regulating investment services), the AIF Act introduced common marketing rules for all types of AIFs.
The marketing rules differ depending on the jurisdiction of the manager and the fund, whether the manager is authorised or registered, and the jurisdiction of target investors. Implementation of the amendments to the AIFMD introducing rules on pre-marketing has not yet entered into effect.
The AIF Act and the implementation of the AIFMD in Norway are, to a large extent, based on a copy-out approach, with little or no ‘gold plating’. Norway has implemented the AIFMD thresholds, allowing for light-touch regulation of managers of smaller funds that are not mutual funds (in simple terms, less than €500 million for closed-ended funds and less than €100 million for open-ended funds).
For private equity managers, that threshold will typically be €500 million, as such funds, as a rule, are unleveraged at the fund level. In practice, the authorisation requirement will typically be triggered by the fact that the manager wishes to manage a fund established outside Norway, to market to professional investors in the EEA or to market fund interests to investors that are not professional according to the definition in the AIFMD. Norwegian rules concerning marketing of interests in AIFs to non-professional investors require that the manager is authorised under the AIFMD.
Whether the fund sponsor corresponds to the fund manager (on which the onus of regulation of the AIFMD lies) will vary depending on how the fund structure has been organised. Norwegian private equity funds will typically be managed by an external manager that is either registered or authorised. Internally managed private equity funds are rare. Certain larger sponsors with funds established outside Norway may have a structure whereby the manager (typically the general partner) is established in the same jurisdiction as the fund, and any Norwegian entities operate in an advisory function to the general partner. Advice in the context of private equity funds has been viewed by the Financial Supervisory Authority of Norway (FSAN) as being outside the scope of investment advice as defined in the Markets in Financial Instruments Directive (MiFID II). This mode of organisation requires that the actual management of the fund be undertaken outside Norway, and that the advisory company not engage in investment advice or any other regulated activities.
Marketing of Norwegian unregulated funds by managers falling below the threshold values of the AIFMD and established in Norway are not subject to the specific marketing notification rules under the AIF Act. Managers of sub-threshold funds may opt in to benefit from the marketing passport under the AIFMD.
Norway has implemented the private placement provisions of the AIFMD in respect of funds and managers established outside the EEA. On this point, however, the rules are somewhat stricter than those under the AIFMD, as they require prior authorisation from the FSAN to carry out marketing, rather than relying on notification only. In addition, for fund managers established outside the EEA, there is a requirement that they be registered with a competent authority and subject to prudential supervision in their home state for the purposes of asset management. Following the implementation of the pre-marketing rules into Norwegian law in 2024, non-EEA managers may no longer carry out pre-marketing in Norway (see ‘Year in review’ above).
If the interests issued by unregulated investment funds are financial instruments, then services relating to those interests (such as arrangement services or second-hand share sales) constitute investment services that fall within the scope of MiFID II, transposed into Norwegian law through the Securities Trading Act (the ST Act). Under Norwegian law, interests in limited partnerships are generally not viewed as financial instruments, but there is a specific extension of the scope of the ST Act to include interests in limited partnerships where those interests represent a commitment of less than 5 million Norwegian kroner or the investors are not professional investors per se according to the definition in MiFID II.
In addition, the offer of interests that are financial instruments may trigger a requirement to publish a prospectus under the public offering rules of the ST Act, unless an appropriate exemption is available.
Marketing of private equity funds to non-professional investors requires a separate authorisation by the FSAN and is available only to funds managed by an EEA-authorised AIFM. The EuVECA, European social entrepreneurship funds (EuSEF) and ELTIF regulations also contain specific rules on marketing to non-professional investors.
There have been few supervisory actions in the private equity segment, largely because the majority of funds have targeted institutional and professional investors. The FSAN has focused primarily on monitoring marketing activities by sub-threshold managers in respect of non-professional investors and selling practices in respect of shares in investment companies for real estate investments. The FSAN is paying growing attention to investor classification carried out by Norwegian sponsors and whether investors are appropriately classified as professional or not, and has taken action against funds with non-professional investors where the agency deemed the manager to have been acting contrary to the requirements of the AIF Act (such as the duty to ensure equal treatment) as well as managers’ compliance with the Norwegian Anti-Money Laundering Act. In respect of reverse solicitation, the FSAN will typically require firm documentation for reverse solicitation to substantiate that no marketing has been undertaken in respect of non-professional investors without authorisation.
The scope of fiduciary duties that a fund manager owes to the fund investors is different for authorised AIFMs and for registered AIFMs.
While authorised AIFMs are subject to overarching business conduct rules, as further specified in the AIF Act and the AIFM delegated regulation, registered AIFMs are subject only to contractual obligations towards fund investors, and general marketing and contract law. However, the entry into force of the SFDR and the Taxonomy Regulation has introduced certain statutory investment restrictions also for registered AIFMs if they elect to manage or market funds that are Article 8 or Article 9 funds.
Authorised AIFMs are required to appoint a single depository to each fund under management. This includes unregulated funds not previously subject to such a requirement. Although there are a limited number of available Norwegian service providers in this segment, this has not proven to be a bottleneck for the establishment of new funds. However, the FSAN has been sceptical of depositaries in the same group as the AIFM. Further, authorised AIFMs are subject to specific requirements concerning internal organisation, including separation of risk management and valuation and compliance functions, as well as rules limiting their activities to managing AIFs and certain MiFID investment services as ancillary activities subject to prior authorisation. Authorised AIFMs may therefore also offer managed account products, provided that the AIFM has the relevant authorisation.
Regulation
Regulatory oversight and registration obligations
Private equity fund managers and their activity fall under the oversight of the FSAN. The FSAN is responsible for the prudential supervision of managers – including both registered and authorised managers – and, indirectly, the funds managed by such managers. The Consumer Authority has oversight of actors in the financial sector providing services to consumers, including investment products such as private equity fund interests offered to consumers and the marketing of such products and services.
The PRIIPs Regulation, which has a requirement for a key information document (KID) when making interests in private equity funds available to non-professional investors, was finally implemented into Norwegian law in 2024 after years of delay. Prior to this, non-EEA-based rules did, however, require a KID to be drawn up to obtain authorisation to market AIFs to non-professional investors. Therefore, it remains to be seen whether the implementation of the PRIIPs Regulation may introduce increased competition and cost transparency for asset managers active in the retail markets. Higher costs and risks connected to retail products may also lead to reduced competition, if non-Norwegian sponsors do not find the market large enough to warrant the investment. Distribution of private equity interests in the retail segment is also be affected by MiFID II and stronger investor protection rules. The rules on inducements under MiFID II affect sponsors in terms of how they can distribute funds in a cost-effective manner. It remains to be seen whether the increased transparency offered by PRIIPs will also affect the marketability of different segment (and higher-cost) funds in the retail markets, and whether this transparency will also affect the approach of institutional investors, especially smaller institutional investors that are not large enough to directly influence costs of management.
In 2023, statutory ESG reporting and disclosure requirements for AIFMs entered into force with the implementation into Norwegian law of the SFDR, and the Taxonomy Regulation entered into effect as of 1 January 2023. Managers that have been targeting EU investors or managing EU funds were subject to the rules prior to this and may have obtained some experience in compliance. For other Norwegian managers (and entities subject to those rules), the abrupt entry into force required a significant and fast effort to comply. The rules do not – as a starting point – contain substantive investment restrictions. However, the SFDR regulation requires fund managers to integrate ESG principles from the very outset when establishing a new fund, as they must determine the classification of the fund as either an Article 6, Article 8 or Article 9 fund right from the fund formation stage. In any case, investor appetite for ESG and sustainability products from institutional investors is a sign of private equity fund managers being required to integrate ESG principles into their investment and risk management processes to a much higher degree than has been the case to date.
As mentioned above, private equity funds are not regulated at the fund level in Norway, except for EuVECA, EuSEF and ELTIF regulated fund types. For unregulated funds, there are no specific regulatory requirements concerning the funds themselves. However, the rules of the AIF Act that apply to fund managers require that the funds be registered with the FSAN as being managed by the manager, irrespective of whether the manager is a registered or authorised AIFM. Further, certain provisions of the AIF Act, such as those concerning valuation, will have some bearing on the terms of the fund. In June 2019, the FSAN issued a circular concerning project finance companies and the scope of the AIF Act. Project finance companies that are single asset funds have been widely distributed in both the professional and retail spaces, as it has been the market view that these were outside the scope of the AIF Act. Pursuant to the FSAN circular, the FSAN holds that most of these undertakings constitute AIFs subject to the AIF Act, unless they are joint ventures or the investors otherwise have day-to-day discretion or control. The FSAN has recently taken action in the context of such single assets funds, in connection with capital increases where the FSAN found that, inter alia, retail investors were not treated fairly.
Registered and authorised AIFMs are equally subject to the Norwegian Anti-Money Laundering Act (transposing the EU Fourth Anti-Money Laundering Directive into Norwegian law) and the General Data Protection Regulation (GDPR), as well as to requirements under tax reporting legislation implementing the Foreign Account Tax Compliance Act (FATCA) and the Organisation for Economic Co-operation and Development Common Reporting Standard (CRS).
Taxation of Norwegian funds and investors
In respect of taxation of Norwegian private equity funds and investors, Norwegian taxation broadly depends on whether a Norwegian fund is transparent (typically a limited partnership) or opaque (typically a limited liability company) for Norwegian tax purposes.
Taxation of transparent Norwegian funds and their investors
A transparent fund is not subject to Norwegian taxation. Instead, the income, gains, costs and losses of the fund are calculated at the level of the fund and taxed at the hands of its investors on a current basis (irrespective of whether the fund makes any distributions).
An investor (Norwegian or foreign) is taxable for its share of the fund’s net income and gains at the ordinary tax rate of 22 per cent (25 per cent if the investor is subject to the financial tax rate; see ‘Financial tax rate’). However, any gains deriving from the fund’s qualifying equity investments (see ‘Carried interest’) are tax exempt, while any dividends from such investments are subject to effective taxation (3 per cent of dividends taxable at the ordinary tax rate) of 0.66 per cent (0.75 per cent if the investor is subject to the financial tax rate).
An individual investor is further subject to an effective tax rate of 37.84 per cent on distributions from the fund to the extent that they are not treated as tax-free repayments of paid-in capital, as well as on gains upon disposal of interests in the fund. The individual investor, however, is allowed a deduction in the distributions or gains for any taxes paid by the investor on the income and gains of the fund and, further, is allowed a minor shielding deduction.
A corporate investor is subject to 0.66 per cent (0.75 per cent if the investor is subject to the financial tax rate) effective taxation on distributions from the fund (3 per cent of distributions taxable at the ordinary tax rate), to the extent that they are not tax-free repayments of paid-in capital. The corporate investor is tax exempt on any gain upon disposal of interests in the fund, provided that at least 90 per cent of all equity investments held by the fund have been qualifying equity investments (see ‘Carried interest’) for a consecutive period of at least two years immediately prior to the investor’s disposal. Otherwise, the gain would be subject to the ordinary tax rate of 22 per cent (25 per cent if the investor is subject to the financial tax rate).
An investor may generally deduct costs, although a corporate investor may not deduct acquisition or realisation costs relating to qualifying equity investments. Losses are generally deductible to the extent that corresponding gains would be taxable, but with certain limitations that are not dealt with further in this chapter.
The above generally applies to both Norwegian and foreign investors, but foreign investors may, for example, be exempt from Norwegian taxation under an applicable double tax treaty, and certain other deviations may apply.
Taxation of opaque Norwegian funds and their investors
An opaque fund in the form of a limited liability company is subject to the ordinary tax rate of 22 per cent on its income and gains. The rate is 25 per cent if subject to the financial tax rate (see ‘Financial tax rate’). However, any gains deriving from the fund’s qualifying equity investments (see ‘Carried interest’) are tax exempt, while any dividends from such investments are subject to effective taxation (3 per cent of dividends taxable at the ordinary tax rate) of 0.66 per cent (0.75 per cent if the investor is subject to the financial tax rate). Such dividends are fully exempt from taxation if they are paid by an EU or EEA-resident company in which the fund holds more than 90 per cent of both share capital and votes (subject to certain conditions). The fund may generally deduct costs to the extent that they are not acquisition or realisation costs relating to qualifying equity investments. Losses are generally deductible to the extent that corresponding gains would be taxable, but with certain limitations that are not dealt with further in this chapter.
A Norwegian individual investor is subject to an effective tax rate of 37.84 per cent, minus a minor shielding deduction, on gains and dividends from the fund, and is entitled to deductions for associated costs and losses.
A Norwegian corporate investor is tax exempt on any gains from the fund and is subject to effective taxation (3 per cent of dividends taxable at the ordinary tax rate) of 0.66 per cent (0.75 per cent if the investor is subject to the financial tax rate) on any dividends from the fund. Correspondingly, losses are not deductible.
A foreign investor is subject, in general, to 25 per cent Norwegian withholding tax on dividends from the fund, while any gain upon disposal of interests in the fund is not subject to Norwegian taxation unless the shares are connected to a permanent establishment maintained by the foreign investor in Norway. The foreign investor may be entitled to a reduced withholding tax rate under an applicable double tax treaty. Foreign corporate investors that are genuinely established and carrying on genuine economic activities within the EEA are normally exempt from withholding tax. Further, individual investors resident within the EEA may claim a reduced withholding tax if the withholding tax exceeds the net taxation that would have been borne by a Norwegian individual investor.
Qualifying equity investments
Norway has a tax exemption method that applies to qualifying equity investments. Qualifying equity investments include:
- shares in Norwegian limited liability companies and similar opaque entities;
- shares in corresponding EEA limited liability companies, provided that the EEA company in question is not a wholly artificial arrangement established in a low-tax country; and
- shares in corresponding non-EEA limited liability companies, provided that the non-EEA company is not resident in a low-tax country and, further, provided that the fund holds at least 10 per cent of the share capital and votes of the non-EEA company for at least two consecutive years.
Qualifying equity investments further include investments in tax-transparent entities, provided that at least 90 per cent of all equity investments held by the transparent entity have been qualifying equity investments for a consecutive period of at least two years.
Financial tax rate
A specific financial tax applies to Norwegian asset managers (and Norwegian branches of foreign asset managers). The tax is composed of two elements: 5 per cent tax on the aggregate payroll expenses and 25 per cent tax on net income (compared with 22 per cent, which is the ordinary tax rate for 2024).
Carried interest
For funds sponsored by Norwegian managers, the right to carried interest normally depends on the investors having received payment for the entire contributed amount, in addition to a minimum return (typically 8 per cent). The excess proceeds are normally divided (usually 80:20) between the investors and those who have the right to carried interest.
The first court case on taxation of carried interest was in 2013 and involved the management company Herkules Capital and three partners. The case concerned the validity of a reassessment of income for 2007 by the tax authorities against Herkules Capital and the three partners, who had received amounts under carried interest. The tax authorities had concluded that the amounts – which had accrued to the partners’ personal wholly owned investment companies – constituted ordinary income (salary) for the relevant persons, and that the amounts received by the general partner were taxable as business income in the hands of Herkules Capital.
After an annulment of the tax authorities’ reclassification in the court of first instance (district court) and a full win for the tax authorities in the court of appeal, the Supreme Court rendered its judgment on 12 November 2015. The Supreme Court found that the amount of carried interest received by the partners’ investment companies was not taxable as ordinary income (salary) for those persons. Further, the Court found that the part of the carried interest amount received by the general partner corresponding to the partners’ share could not be reallocated to Hercules Capital as business income. In coming to its conclusion, the Supreme Court emphasised that the taxation of carried interest must be based on the agreed allocation of income between the parties (unless the agreed allocation constitutes a tax avoidance in breach of the general anti-abuse rule or is not based on the arm’s-length principle). Further, the Supreme Court emphasised that even though the contribution by the partners was an important factor for the achievement of carried interest, carried interest was also a result of other factors, such as the persons working in the relevant portfolio companies and market developments.
While taxation of carried interest remains a heated topic in many jurisdictions with varying degrees of legal uncertainty, Norwegian tax authorities have so far accepted the 2015 judgment from the Supreme Court, and we have yet to see any new court cases regarding such taxation. However, it remains essential for the tax classification that sufficient economic risk has been taken to substantiate the entitlement to the potential excess return carried interest represents (typically in the form of establishment and investment risk).
Outlook and conclusions
In 2014, the AIFMD was transposed into Norwegian law and was a watershed for the industry. Before that, both management and marketing of private equity funds were unregulated. Compliance practices were purely market-driven.
Following the introduction of the AIFMD, Norwegian fund managers have also been subject to the Norwegian implementation of the EU Anti-Money Laundering Directive, the FATCA/CRS and the GDPR. The SFDR and the Taxonomy Regulation entered into effect in Norwegian law on 1 January 2023 and have further widened the scope of regulatory rules applicable to Norwegian fund managers. They will also apply to registered (and not only authorised) alternative fund managers.
Outside market developments, there are certain important challenges going forward for the Norwegian private equity sector. The Norwegian financial sector – and, indirectly, the investors and clients, both Norwegian and foreign – has been affected by the long and seemingly growing delay in implementing EU financial legislation in Norway. The backlog of outstanding legislation is significant and has led to some hasty implementations due to the long delays. In the asset management area, the CBDF and PRIIPs were implemented into Norwegian law, respectively, five and almost 10 years later than in the EU. There is a concern that this pattern of delays, followed by hasty implementations, will continue in respect of future EU regulation, such as the ELTIF 2.0 and AIFMD 2.0.
Under Norwegian law, providing credit (both loan originating and secondary acquisition of loans) is a regulated service and, as a rule, only credit institutions and similarly regulated entities may provide credit. However, the implementation of the ELTIF, EuVECA and EuSEF regulations has allowed such funds to provide credit, albeit within the constraints of these regulations. Perhaps surprisingly, only one Norwegian ELTIF has been established so far, indicating limited interest among Norwegian sponsors in raising such funds. As mentioned in ‘Legal framework for fundraising’ above, this reluctance may be attributed to unfavourable Norwegian tax rules. A similar tax disadvantage affects Norwegian securities and UCITS funds, leading several large fund managers to relocate their funds at the beginning of 2025, which sparked a public debate regarding the tax regime. In response, the Norwegian Ministry of Finance has recently circulated a discussion draft proposing more favourable tax rules. While no similar proposals have been made for AIFs, it remains to be seen whether this will benefit such funds as well in the future.
While the investment level remains relatively high compared with the historical average, the number of private equity exits remains low and many sponsors are struggling to provide their investors with liquidity. To navigate this difficult environment, continuation vehicles have become an increasingly popular exit strategy. These vehicles offer liquidity to limited partners while allowing sponsors to retain prized assets for an extended period and, thus, to realise the full value of such assets. This trend is gaining traction amongst Norwegian sponsors, with Equip Capital and FSN Capital notably raising their first continuation vehicles in 2024, and we anticipate that the trend will continue going forward.
This article was originally featured on Lexverify | Source
