Western Australia is the country's fourth-largest state by population but the richest by natural resources and this has seen it emerge as the primary source of economic growth. This shift in momentum from east coast to west – coupled with the cyclical downturn in retail sector – is reflected in private equity investment trends.
"When I look at the Advent V portfolio, about one third of the investments are infrastructure or mining focused," says Rupert Harrington, managing director of Advent Private Capital, an Australian mid-market private equity firm. "In one case, there is full exposure to mining because it's an underground mining services company. In others, there is a variety of exposure to mining-related markets. In Advent VI, which we are currently raising, our first investment is mining services and about one third of the portfolio will be in this area."
As for retail, Advent has never been a big investor in the sector and this is unlikely to change. Harrington notes that retail sales are at a 50-year low in relation to real growth - an unusual situation in Australia, but perhaps one that reflects the commodities boom - while the sector itself is incredibly competitive. The highly concentrated ownership of shopping malls doesn't help firms with an eye on expansion.
"When we've looked growth businesses, there has been a significant increase in the rents in shopping centers," Harrington adds. "In essence you get a profit shift from the business to the landlord, and the disparity of negotiating power is a problem."
Looking at the principal challenges facing Australian private equity, Harrington highlights fundraising, primarily due to domestic LPs cutting back on their exposure to local funds. GPs that already have exposure to international investors - and can point to strong track records when pitching them for larger allocations - are therefore best positioned to cope with the changing environment.
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The outlook for the Australasian market is positive as a record number of IPO exits have provided strong returns for investors and has proven that PE can outperform listed equities and compete with global divestment figures. Fundraising in terms of dollar value has been high but the number of PE funds successfully raising new commitments has declined as investors flock to the best in class.
This is an intriguing time for Australasian PE as the industry continues to mature. GPs must evolve, diversify and display skills to drive value in a low-growth environment and justify future commitments when competing on a global state by achieving world-class results from current deals and exits.
4-6 March 2015, The Westin, Sydney
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The market is relatively optimistic as a new government that is viewed favourable to a balanced investment arena is introduced and we see an increase in deal activity. The hopes for a flourishing PE market amid the euphoria of 2012 has not yet been realised but the potential is still present and now may well be the time for the country to take off in its own right and increase its reputation as THE hot market in Southeast Asia.
24 March 2015, Grand Hyatt, Jakarta