Dry powder levels at record high

From

Yasser El-Ansary

Private capital investors in Australia have a combined US$14.8bn of dry powder to deploy in the next two to three years, according to a new report by EY and the Australian Investment Council.

The report − Will the rise of private capital tip the balance of investment power? – shows the growth in allocated capital for private markets in Australia is consistent with other developed economies indicating a potential upsurge in deal activity in the future. New opportunities created from changes to regulations in SE Asia, closure of some of the megafunds in North America, and a relatively stable macroeconomic environment and low interest rates in Europe, are some of the reasons behind this growth.

Australia raised a total of US$12.7bn in aggregate capital in 2018 with funds showing strong preferences for new investments into stable assets such as land title registries, data centres and smart metering along with real estate and natural resources.

Deal value also significantly increased from 2017 to 2018 − by 64% for private equity-backed buyouts, and by 200% for venture capital deals.

Australian Investment Council Chief Executive Yasser El-Ansary said Australia is well positioned to reap the opportunities presented by a changing private capital landscape as the industry continues to grow and domestic fund managers expand their access to a deeper and more varied pool of funds.

“More engagement from institutional investors, solid and consistent returns and an increased focus on responsible investing lay the foundations for private capital to have an even more prominent impact on our economy and communities well into the future,” he said.

Milan Milosevic, EY Oceania Private Equity Leader added: “The rise of private capital indicates a new era for Australia’s investment market, characterised by increasingly influential investors along with new investment models.

“Importantly, the emergence of private capital in Australia comes at a time when public markets are increasingly focused on short-term investor expectations at the expense of long-term growth initiatives.”

Private equity and venture capital investment has continued to perform strongly for investors. The most recent data shows the PE and VC Benchmark Index was ahead of public markets by 200 to 400 basis points in Q3 2018.

Key highlights

  • Australia closed 48 funds in 2018 and raised US$12.7bn in aggregate capital
  • Dry powder investment in Australia was US$14.8 bn in 2018, an increase of 6% from 2017
  • 37.5% of institutional investors are co-investing with private equity and venture managers and a further 22.5% are considering co-investment in the near future
  • Australian Superannuation funds hold 39% of the total investment allocation to the private capital market
  • IPOs are no longer the primary source to fund growth or access liquidity.

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