The evolution of Australian private equity

This is a particularly interesting topic given that the numbers for Australia are looking good, with a recent flurry of investments and exits being announced. Australia is a market that has delivered solid returns in the past, yet fundraising is suffering tremendously as a result of local institutional investors cutting back from the large allocations they've made to the asset class in the mid 2000s.

One might remember that prior to the GFC, many Superannuation funds started allocating to local private equity after seeing the stellar returns from their pioneering colleagues that have invested in the earlier vehicles of leading firms. Flush capital combined with the buoyant economy, resulted in high valuations, which the new and experienced managers still paid. When the GFC hit in 2007/8, mark-to-market recently put quite a few deals underwater with several failing to surface.

Now, the industry is rationalized by the Super community that is unhappy about the high fees (without the corresponding outsize returns) of private equity funds, with a number of investors contemplating withdrawing from the market (and attracting secondaries funds down under).

As a result a change in the landscape is inevitable. We've seen a number of examples throughout the region in the past year, where funds are forced to withdraw from the market as they were unable to raise capital from local institutions and ignored by the overseas investors.

However, all is not doom and gloom for Australian private equity. In fact, it is quite the opposite. Fundraising is still possible for funds that have (of course) good track records - Quadrant was able to muster A$750 million (on a fund initially targeting A$600m) in only a few months, as well as the mammoth CHAMP III, which rumored to have closed end of last year.

In term of investments, mid-size deals never went away and will continue to be busy as ever while the Healthscope deal proves that large scale buyouts are back (could have nailed the point with KKR/Perpetual but...). As for the all important exit, there has been a number that solid ones (Loscam, Study Group) and many more in the making such as much awaited Nine Media listing.

Finally, we are now left with the ATO ruling. While dealmakers are obviously are not excited about the tax, if done profitably private equity deals will continue to make money. The Myer deal, which arguably arouse the attention of the ATO, is worth mentioning here. Although it may face possible taxation that will affect returns, it doesn't take away from the fact that it was a classic example of private equity investors doing their job - taking over a troubled company, turning its fortunes around and then exiting it at a good valuation.

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• Australasia