Australian private equity and venture capital reached an all-time high last year as more businesses chose to stay private for longer, according to new research.
The Australian Investment Council (AIC) 2019 Yearbook reveals that Australian private capital firms reached $30 billion in assets under management in June 2018, an 18 per cent increase from just six months prior.
The funds split was $23.3 billion in private equity and $7.1 billion in venture capital, with most deals in information technology.
AIC chief executive Yasser El-Ansary says: “More and more businesses are choosing to raise capital from private capital investors today, rather than through public markets, because of the benefits of partnering with venture, private equity and private credit firms.”
According to El-Ansary, private capital not only provides access to funding but businesses are accessing the strategic value-add that they need to develop new directions to recalibrate the business, and this is not something available through public markets.
The report reveals that throughout last year, 17 private capital funds raised $6.6 billion. Of the total amount, $1.3 billion was raised by nine venture capital funds and $5.3 billion by eight private equity funds.
El-Ansary says: “There is often a perception that private equity brings a relaxed focus on governance. In fact, the evidence is the opposite as it brings a heightened sense of focus on governance, direction, goals and key performance indicators while instilling a corporate approach to business activity and frameworks.”
The strong fundraising activity has increased the industry’s cash reserve by 31 per cent in the previous year to $11 billion.
“These figures highlight just how attractive our market is to both local and global investors,” El-Ansary says.
The yearbook reveals buyout funds as the preferred strategy for investors, generating 79 per cent of the total new fund commitments and making up a staggering $20 billion of AUM.
Four of the five largest private equity and venture capital funds that closed in 2018 were buyout funds including BGH Capital, Crescent Capital Partners, Adamantem Capital and Mercury Capital.
The majority of deals in private equity were in the information technology sector, at 19 per cent, followed by food and agriculture and healthcare, both at 16 per cent.
Venture capital deals were heavily weighted towards software, at 39 per cent, and internet at 29 per cent. However, in terms of the value of the deals the healthcare sector made up 45 per cent of total deals by value.
El-Ansary says: “Private capital investment offers an opportunity to provide smart capital to privately backed companies in a relatively low risk environment and the numbers prove we’re well positioned to do that.”
As at June 2018, Australian based firms held 2.8 per cent of total private equity and venture capital assets under management for the Asia-Pacific region. China makes up 66 per cent, followed by Hong Kong at 13 per cent, South Korea at 7 per cent, Japan at 4 per cent and India and 3 per cent.
