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A UNIQUE PERSPECTIVE ON THE ISSUES AND OPPORTUNITIESFACING INVESTORS IN AUSTRALIAN PRIVATE EQUITY
Global Private Equity BarometerAustrAliA snApshot
A u s t r A l i A s n A p s h o t2
Coller Capital’s Global Private Equity Barometer
Coller Capital’s Global Private Equity Barometer is a unique
snapshot of worldwide trends in private equity – a twice-yearly
overview of the plans and opinions of institutional investors in
private equity (Limited Partners, or LPs, as they are known) based
in North America, Europe and Asia-Pacific.
Australia snapshot
This special edition of the Global Private Equity Barometer
on the Australian private equity market captured the views
of 35 private equity investors from around the world. The
Barometer’s findings are representative of the LP population
investing in Australia by:
Investor location
Type of investing organisation
Total assets under management
Length of experience of private equity investing
Contents
Key topics in this edition of the Barometer include:
LPs’ returns and appetite for PE in Australia
Prospects for PE dealflow
Attractive sectors for GP investment
Strengths of the Australian PE market
Risks facing Australian PE
Obstacles facing Australian venture capital
Risk/return profiles of key Asia-Pacific countries
A u s t r A l i A s n A p s h o t 3
LPs have done well from Australian buyouts
Half of investors have achieved net returns of 16%+ from their
investments in Australian buyouts.
Australian venture – like venture in Japan & Europe – has not
performed as strongly as buyouts. Just one in five LPs report
returns of 16%+ from Australian venture investments.
The apparently less robust performance of Australian venture
has not harmed LPs’ overall returns because the weight of
their exposure to Australian private equity is heavily biased
towards buyouts. Overseas investors in Australian PE tend to
have negligible allocations to venture, and even for Australian
investors venture is a relatively small part of their overall
commitments.
LPs expect strong Australian PE returns in the medium term
Three quarters of investors (77%) expect Australian buyouts
to yield net returns of 16%+ over the next 3-5 years. This
compares favourably with expected returns from buyouts in
other areas of the world.
LPs also have high expectations for Australian venture – over
half (55%) expect returns of 16%+.
lps achieving net returns of 16%+ from their portfolios since they began investing
(Figure 1)
Australianbuyouts
Australianventure
Japanesebuyouts
Japaneseventure
Asia-Pacific
buyoutsoverall
Asia-Pacific
ventureoverall
Europeanbuyouts
Europeanventure
NorthAmericanbuyouts
NorthAmericanventure
lps expecting net returns of 16%+ from their portfolios over the next 3-5 years
(Figure 2)
Australianbuyouts
Australianventure
Japanesebuyouts
Japaneseventure
Asia-Pacific
buyoutsoverall
Asia-Pacific
ventureoverall
Europeanbuyouts
Europeanventure
NorthAmericanbuyouts
NorthAmericanventure
A u s t r A l i A s n A p s h o t4
Investor appetite for Australian buyouts is increasing
Nearly two thirds of investors in Australian PE – both domestic
and overseas investors – plan to increase their allocations to
Australian buyouts over the next 3 years.
Approximately one third of investors – both domestic and
overseas LPs – expect to increase their allocation to Australian
venture capital, but this will be slightly offset by a reduction in
allocation by one in five domestic investors.
Overseas investors to increase commitments to domestic GPs
Only a quarter of overseas investors (27%) have thus far chosen
to invest in Australian private equity via domestic GPs – the
majority (73%) choosing to invest via global or pan-Asian funds.
Domestic GPs have unsurprisingly been the route of choice for
the majority of Australian investors (88%).
Over the next 3-5 years, however, overseas investors intend to
make more commitments to Australian GPs.
lps’ planned allocations to private equity in Australia over the next 3 years
(Figure 3)
investors with commitments to Australian Gps
(Figure 4)
Venture VentureBuyouts
Australian LPs Overseas LPs
Buyouts
Increase Stay the same Decrease
Next3-5 years
Next3-5 years
Currently
Australian LPs Overseas LPs
Currently
A u s t r A l i A s n A p s h o t 5
LPs believe pressure on GPs to provide low-fee funds will benefit returns
Three quarters of investors (77%) think that the pressure on
GPs to provide low-fee funds in Australia will have a positive
impact on private equity returns in the long term.
Australia's PE dealflow expected to change complexion
Distressed/turnaround situations are expected to deliver a
greater proportion of Australian PE dealflow over the next
3 years, with growth capital opportunities and buyouts also
expected to become more significant.
61% of investors also expect PE’s share of Australian M&A to
increase over the next 3 years; only one in five expect it to
decrease.
how the pressure on Gps to provide low-fee funds will impact lps' long-term returns
sources of pE dealflow in Australia over the next 3 years – lp views
likely changes in pE’s share of Australian M&A over the next 3 years – lp views
(Figure 5)
(Figure 6)
(Figure 7)
Impact onLPs’ returns
will be positive(77%)
Impact onLPs’ returns
will be negative(23%)
Growthcapital
Distressed/turnaround
Buyouts Public-to-privates
Start-ups
Increase Stay the same Decrease
Increasesignificantly
(15%)
Stay thesame(21%)
Decrease(18%)
Increasemoderately
(46%)
A u s t r A l i A s n A p s h o t6
LPs' views on the three best sectors for GP investment
Almost all LPs (over 90%) expect mining & natural resources,
healthcare, and retail & leisure to be attractive sectors for GP
investment in Australia over the next 3 years.
Conditions for PE are good in Australia
The conditions for private equity investment in Australia are
regarded very positively by investors.
The sophistication of Australia’s capital markets and the
country's macro-economic climate are seen as particularly
strong plus points.
The majority of LPs (94%) think taxation is now at an acceptable
or attractive level for the Australian private equity industry.
the best sectors for Gp investment in Australia over the next 3 years – lp views
strengths and weaknesses of the Australian private equity market – lp views
(Figure 8)
(Figure 9)
Attractive Unattractive
Technology &biotechnology
Mining &natural resources
Healthcare
Retail & leisure
Financial services
Industrialmanufacturing
& services
Real estate &infrastructure
Attractive Acceptable Unattractive
Taxation forPE investors
Sophistication ofcapital markets
Macro-economicclimate
IPO market
Regulatoryenvironment
Availabilityof bank debt
A u s t r A l i A s n A p s h o t 7
Competition and scarcity of PE talent are greatest risks
Private equity is a highly skill-based investment discipline, and
LPs believe scarcity of PE talent is the single greatest risk facing
the Australian private equity industry over the next few years
(73% of investors).
Two thirds of LPs (67%) are concerned that increasing
competition for dealflow will negatively impact returns.
Less than a quarter of LPs (23%) think the attitudes of the
media or the general public are a significant risk to private
equity in Australia.
risks facing Australian pE over the next few years – lp views
(Figure 10)
Significant risk Small risk
Press and publicattitudes to PE
Scarcity of PE talent
Availability of exitopportunities
Shareholder rejectionof public-to-private
offers
Deterioration in theeconomic climate
Increasing competitionfor PE dealflow
Regulatory/tax changes
The impact of leverage levels on buyout returns
A third of LPs (35%) believe that the leverage multiples being
applied to buyouts in Australia will reduce Australian buyout
returns across the board, while another third (32%) believe the
effect will be restricted to some buyout funds only.
the likely impact on lps' returns of current leverage multiples in Australian buyouts – lp views
(Figure 11)
Reduce Australianbuyout returns
generally(35%)
Reduce returns in somebuyout funds in Australia
(32%)
No impacton returns
(23%)
Reduce returns in a small numberof portfolio companies in Australia only
(10%)
A u s t r A l i A s n A p s h o t8
Skills and track records are in short supply in Australian venture capital
Two thirds of investors (62%) cite a lack of GPs with the
necessary skills and track record as a key factor reducing the
attractiveness of venture capital in Australia.
Another limiting factor is seen to be the relative under-
development of exit routes for Australian venture capital –
48% of LPs think exit routes are too few or too weak.
Overseas LPs believe it is too easy for ‘weak’ GPs to raise funds in Australia
Over half of overseas LPs (54%) say it is too easy for weak
GPs to raise funds in Australia. One third of Australian LPs
(31%) are of the same opinion.
Factors impacting the attractiveness of Australian venture capital – lp views
Ease with which weak Gps can raise funds in Australia – lp views
(Figure 12)
(Figure 13)
Significantly reduces attractiveness Not really a factor
Insufficient access tointernational commercial/
capital markets
Too few GPs withthe necessary skills
& track record
Exit routes are toofew/too weak
Unfavourable regulatory/tax environment
Entrepreneursreluctant to share ownership
of businesses
Australian marketplaceis too fragmented
Overseas investorsAustralian investors
No – it’s not easy forweak GPs to raise fundsin Australia
Yes – it’s too easy forweak GPs to raise fundsin Australia
A u s t r A l i A s n A p s h o t 9
Australian LPs’ appetite for overseas investment may divert funds from domestic GPs
Almost half of investors (48%) think the increasing appetite
of Australian LPs for overseas investment will divert LP
commitments away from domestic GPs.
This effect will be counteracted to some extent by the
strengthening appetite of overseas investors for Australian PE.
Australia will vie with India, China and Japan for LP money
Australian LPs see Australia as having the best risk/return
profile of any Asia-Pacific PE market over the next 3-5 years,
followed by Japan and India.
For overseas investors, India has the most favourable risk/
return profile followed by Australia and then China.
impact on domestic Gps of Australian lps' increasing appetite for overseas investment
the 3-5 year risk/return profiles of Asia-pacific pE markets – Australian investors’ views
the 3-5 year risk/return profiles of Asia-pacific pE markets – overseas investors’ views
(Figure 14)
(Figure 15)
(Figure 16)
Yes – it willdivert fundsaway from
domestic GPs(48%)
No – it will not divert funds
away fromdomestic GPs
(52%)
Japan
India
China
Hong Kong
Korea
Taiwan
Singapore
Vietnam
Malaysia
Thailand
Australia 1
2
3
4
5
6
7
8
9
10
11
Australia
China
Japan
Hong Kong
Taiwan
Thailand
Singapore
Vietnam
Korea
Malaysia
India 1
2
3
4
5
6
7
8
9
10
11
A u s t r A l i A s n A p s h o t10
Respondents by region
(Figure 17)
Respondents by total assets under management
(Figure 18)
Respondents by type of organisation
(Figure 19)
Respondents by year in which they started to invest in Australian PE
Global Private Equity Barometer – Australia Snapshot
Respondent breakdown
Coller Capital’s Global Private Equity Barometer researched
the plans and opinions of 35 investors with commitments
to private equity funds investing in Australia (either through
Australia-dedicated funds or through more broadly-focused
funds with an allocation to Australia). Based in Asia-Pacific,
Europe and North America they form a representative sample
of the LP population investing in Australia.
About Coller Capital
Coller Capital, the creator of the Barometer, is the leading
global investor in private equity secondaries – the purchase
of original investors’ stakes in private equity funds and
portfolios of direct investments in companies.
Research methodology
Research for the Barometer was undertaken for Coller Capital in
August-September 2007 by IE Consulting, a division of Incisive
Media, which has been conducting private equity research
for 18 years.
Notes:
Limited Partners (or LPs) are investors in private equity funds
General Partners (or GPs) are private equity fund managers
In this Barometer report, the term private equity (PE)
is a generic term covering venture capital, buyout and
mezzanine investments
Australia(48%)
Europe(17%)
NorthAmerica(26%)
Other Asia-Pacific(9%)
$1bn-$4.9bn(11%)
$5bn-$9.9bn(23%)
$10bn-$19.9bn(11%)
$20bn-$49.9bn(14%)
$50bn+(27%)
Under $500m(11%)
$500m-$999m(3%)
Bank/assetmanager
(11%)Corporation
(6%)
Endowment/foundation
(11%)
Family office/private trust
(3%)
Gatekeeper(9%)
Insurancecompany
(17%)
Corporatepension/
superannuation fund(3%)
Publicpension/
superannuationfund
(23%)
Otherpension/superannuation
fund(17%)
Before 1990(10%)
1990-94(13%)
1995-99(24%)
2000-04(10%)
2005-07(43%)
(Figure 20)