Australian private equity firms struggle to raise new funds

Michael Lukin, managing director at Macquarie Funds, said that only the top quartile of local buyout funds are likely to be successful in their fundraising efforts, while the remainder will be left with legacy investments and no new capital, Reuters reported.

Lukin was speaking at the Australian Private Equity and Venture Capital Association (AVCAL) annual conference as part of panel that addressed "staring into the abyss" of raising a new buyout fund. Many of the difficulties stem from consolidation in Australia's pension fund industry, which manages some A$1.3 trillion ($1.27 trillion), and where a government overhaul is aiming to cut fees and streamline investment choices for consumers.

CHAMP Ventures and Archer Capital are among the few firms currently looking to raise new funds. Stuart Wardman-Browne, director of CHAMP Ventures, admitted that the environment is difficult. He said that the firm is tapping offshore investors for the first time for its seventh fund, which has so far raised A$275 million out of a target of A$450 million.

"We thought it would be easier," Wardman-Browne said. "We have had to concede on fees. We have ended up talking through each individual company in significant detail with each potential investor."

CHAMP Ventures has also has had to cut fees and agree to delay levying performance fees until all money has been returned to investors, rather than after each deal.

Macquarie's Lukin added that some investors are demanding to see a turnaround in individual companies that are underperforming before committing to a new buyout fund.

Several portfolio companies - notably those in the consumer and retail sector - have already gone into administration, including Pacific Equity Partners-backed bookseller REDGroup Retail, which recently agreed to sell some of its stores to Collins Booksellers, and Affinity Equity Partners' clothing and footwear retailer Colorado Group.

Other companies, such as media behemoths Nine Entertainment and Seven West Media, which are backed by CVC Asia Pacific and KKR, respectively, are struggling with heavy debt burdens.

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• Topics
• Australasia
• Fundraising
• GPs
• AVCAL
• Australia
• Fundraising
• CHAMP Ventures
• Archer Capital
• Macquarie Funds Group