Is Australian private equity headed down under?

Total investments came to $11.6 billion, a vast improvement on 2009 when the figure didn't even reach $7 billion, but still well down on the 2006 peak. In terms of investment by stage, Australia consolidated its reputation as a solid buyout market, with 91.5% of transactions falling into this category, a figure scarcely changed from 2009. Its neighbour, New Zealand, by contrast, showed a completely different dynamic, with expansion and growth capital accounting for slightly over half of all investments. However, this figure is down from the 76% year-on-year.

Meanwhile, in terms of fundraising, investors were still voting for Australia with their cheque books. Overall capital under management and the available fund pool in Australasian private equity continued its steady incremental rise through 2010. By the end of the year, private equity capital under management stood at almost $24.2 billion, some $3 billion up on the previous year. CHAMP and Quadrant were responsible for almost $2 billion of that increase.

So what's the prognosis? Like every other market, with the exception of maybe China, Australian GPs will find it more difficult to raise funds and investment in the post-global financial crisis conditions. Once bitten, twice shy LPs are being more careful with private equity allocations and it is not uncommon for GPs to raise smaller funds than before. Taking into account the recent problems (although largely digested much earlier on) with portfolio companies in Australia and the allure of other markets in the region, Australian GPs face a tough task convincing LPs of the merits of their market.

The counterargument is that investors should have faith in the fundamentals of the Australian economy, which is rich in underlying growth drivers. The country's economic performance has been very robust and this is likely to continue. As one prominent investor says, "You can't just rely on economic growth; you have to look at other infrastructural elements to the asset class." But Australia is up there on this count as well, with a fine tradition of rule of law and transparency. And, finally, let's not forget the GPs operating in Australia, which rank up there with the best. These people will make things happen.

(AVCJ's Australia Private Equity & Venture Capital Report 2011 is now available. Please email: avcjsubscriptions@incisivemedia.com for details)

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• Topics
• Australasia
• Quadrant Private Equity
• CHAMP Private Equity