An Australian-Asian story

Yet the country is increasingly part of the Asian story. Those with long memories can point to the influx of Japanese investment 20-plus years ago as Tokyo, Yokohama and Osaka sought to secure commodities to fuel their export boom, but what we are seeing now is regional integration rather than just two-way trade.

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. It is estimated to account for 46% of national exports and nearly three-quarters of these go to China.

Commodities traders, miners and entrepreneurs of all stripes have traveled from Beijing to Pilbara in recent years, looking for iron ore supplies. Larger players have taken more formal routes: Aluminum Corp of China bought a stake in Rio Tinto and now the two firms are setting up a joint venture, while Hunan Valin Iron & Steel acquired an equity interest in Fortescue Metals and a guaranteed share of its off-take.

The commodities boom offers clear opportunities for Australian private equity. Investments will continue to be made in mining services but the impact is felt even further afield. According to Peter Wiggs (page 13), Archer Capital's overall investment focus has shifted to the resource-rich states where there is strong demand for goods and services across the board on the back of rising wages.

Natural resources are not the only way to leverage Asian demand. The spate of PE deals seen in the food space is clearly done with one eye on boosting exports and then selling out to strategic buyers from emerging markets like China (page 16). The freshness of Australia's beef is as appealing as the richness of its iron ore.

Exits have already been proven in the wider consumer space: China's Bright Food Group picked up Manassen Foods to diversify its global business interests and expertise as well as augment product lines targeting its domestic market; Asahi bought Independent Liquor from Pacific Equity Partners and Unitas Capital as part of a wider cross-border surge by corporate Japan in order to counterbalance stagnating domestic markets. Similar transactions will no doubt follow.

Asian capital - and the integration it facilitates - is one of the principal reasons why Australia's economy is outpacing that of virtually every other country in the West. An interesting subplot, at least in private equity terms, is how global integration is affecting domestic fund managers.

A fundraising strategy that targets Australian LPs alone is no longer sustainable - GPs must visit international investors and compete with larger regional and global players for a slice of the Australian allocation.

Previously able to market themselves as one of few reasonably large players in a small market, the onus now falls more heavily on proving that a differentiated approach and a clear investment philosophy can deliver returns. The three largest domestic players - Archer Capital, CHAMP Private Equity and Pacific Equity Partners - have shown that it can be done.

It is also worth bearing in mind that the private equity investor base is shifting on a global level. European and US investors aren't scaling back their exposure to Asia Pacific as they are to other regions, but rapid emergence of Asian and LPs is reorienting the market.

For Australian fund managers, it's a tantalizing proposal. Sovereign wealth funds, institutions and even individuals from countries that are already committing capital to Australia through corporate channels are becoming small but increasingly significant target investors. Throw in the growing number of Asian private equity firms looking for deals in Australia in order to leverage their domestic growth patterns and regional integration potentially becomes even more lucrative. It's also difficult to predict.

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• Topics
• Australasia
• Exits
• Investments
• Southeast Asia
• Greater China
• Fundraising
• Exit
• China
• Fundraising
• Southeast Asia
• Australia
• buyout
• Outbound investment