It is a well established trend that Australian LPs are increasingly looking to internationalize their private equity exposure, arguably at the expense of domestic GPs. Foreign investors looking to enter Australia are not deterred. Sebastiaan van den Berg, managing director at HarbourVest Partners, has no plans to scale back, citing the country’s stable economy, rule of law and experienced GP community.
He does admit, however, that the retreat of domestic LPs leaves their foreign counterparts in a bind. "Perhaps from a more selfish perspective, less capital driving up valuations is better - to the extent that less capital is raised, we probably benefit from that net-net," he tells AVCJ TV. "But we want the GP community here to be successful and it's important for Australian LPs to be long-term active participants."
Nevertheless, an increasingly discerning domestic LP base and weaker economic conditions - Australia's natural resources sector is thriving, but this doesn't extend to the retail space, for example - have created more challenging conditions for GPs. Van den Berg doesn't expect everyone to survive, noting that, unlike six years ago, a rising tide is no longer floating all boats.
"What is happening now, as it becomes increasingly difficult to rely on the global macro environment and multiples arbitrage, the only way you can get attractive returns is through strong operational improvements," he says. "Only a few GPs are really good at that, so you probably will see some go out of business or merge and consolidate. That in itself is not a bad thing."
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Join us at the 11th Annual AVCJ Private Equity & Venture Australia and New Zealand Forum on 5-7 March at the Four Seasons Hotel in Sydney to find out how funds of varying size are raising capital, sourcing deals and exits, as well as all you need to know to effectively navigate Australasia's changing alternative asset landscape.
After a decade-long mining boom the economy is experiencing a loss of momentum and the resulting deal flow reduction and lack of value in the market means GPs are chasing many of the same acquisition targets. That said, the exit market is recovering with both IPOs and M&A activity picking up, and an increase in LPs appetite for the asset class, and the recent government change means that the industry is cautiously optimistic for the future and expecting a rise in activity over the next 12 months.
5-7 March 2014, Four Seasons Hotel, Sydney