12 November 2007

Coller Capital Global Private Equity Barometer – Australia Snapshot

Australian buyouts will outperform European and American buyouts, investors say

Click here to download the Australia Snapshot

  • More private equity deals expected in distressed situations & growth capital
  • Scarcity of investment talent is the biggest risk to Australian private equity
  • Australian venture capital ‘currently lacks GPs with strong skills and track record

Investors (LPs) expect the good returns they have achieved from Australian buyouts to improve still further, according to the Australia Snapshot of Coller Capital’s Global Private Equity Barometer.

Half of the institutions that invest in Australian buyouts have achieved net returns of 16%+ from these investments, and over three quarters of investors (77%) expect to achieve returns of this order over the next 3-5 years. A significantly smaller proportion of LPs expect to achieve similar returns from European or North American buyouts over the same period.

As a result, almost two thirds (63%) of LPs currently investing in Australian private equity plan to increase their allocations to Australian buyouts over the next three years. The picture for Australian venture capital funds is different, with around one third of investors (34%) planning increased allocations, but 1 in 5 domestic investors targeting a reduced exposure.

Domestic private equity managers (GPs) will increasingly benefit from overseas money – 63% of overseas investors with investments in the Australian private equity market plan to channel more funds through Australian GPs. The nature of Australian dealflow is also likely to change over the next couple of years, LPs believe. Distressed or turnaround situations, and growth capital in particular, are likely to become more important as sources of dealflow. Mining/natural resources, healthcare and retail & leisure are expected to provide the best opportunities by industry sector.

While investors believe the underlying conditions for private equity investment in Australia are generally positive, they are concerned about a scarcity of investment talent – especially in venture capital – and also worry that the market itself may overheat, leading to higher prices and reduced returns.

Apart from Australia, investors’ favoured destinations for private equity investment over the next few years are India, China and Japan – with Australian LPs putting their home market top of their lists and overseas investors putting it second behind India.

Commenting on the findings, Jon Freeman, a Partner at Coller Capital, said: “Australian private equity will really come of age in the next few years. Overseas investors will put significantly more money into the market, but they think fund-raising in Australia has been too easy for weak GPs, so they will be very choosy about who they back. For good managers, though, the pickings should be rich – more than three quarters of investors expect annual returns of 16%+ from Australian buyouts, and more than half expect similar returns from venture.

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