Australian private capital reaches $90bn new high

Australian private capital funds reached a record of almost $90 billion in June 2021 despite the persisting COVID-19 pandemic.

Total assets under management (AUM) increased by 11% in the first half of 2021 to reach that new high.

A total of $9.1 billion was raised by Australia-focused capital private funds in 2021, slightly down from the prior year but expected to increase again in the current year.

Deal volume and value was up in 2021, according to the Preqin and Australian Investment Council Yearbook 2022 released on 4 May. The private equity and venture capital sectors, which together account for half of private capital AUM, experienced high deal volume. The aggregate value of private equity deals reached $20.1 billion, 20% higher than the previous peak of $16.8 billion achieved in 2019. Venture capital deals set an all-time record of $7.9 billion, more than double the prior year’s total of $3.9 billion.

“Private capital continued to find new investment opportunities despite the disruption caused by border closures and the extended impact of the COVID-19 pandemic,” said Australian Investment Council interim chief executive Jonathan Kelly.

Over the five years to the end of June 2021, private equity and venture capital AUM grew at an average annualised rate of 11% to reach $42.2 billion. Over the final 12 months of that period, uncommitted capital – dry powder – fell from $13.5 billion to $10.0 billion, reflecting a strong rate of investment into Australian businesses.

Almost half of the investors were overseas institutions. Head of research insights at Preqin, Dave Lowery, said: “Australia’s sophisticated and mature private capital market remains attractive. With returns of 17.8% (median net internal rate of return) for Australia-focused fund vintages from 2012 to 2019, fund performance topped North America, Europe and rest of the world.

“Australia is increasingly seen as a desirable destination and hub for institutional investment, with the active participation of both international and local fund managers. We believe that private capital will play a key role in the country’s economic recovery, due to the sector holding $26 billion in available funds for investment.”  

Private debt was, however, the fastest growing asset class with a 144% increase in AUM, from a low base, in the first half of 2021.

“Private debt managers are an increasingly important source of funds for small to mid-sized Australian companies as the commercial banks impose tighter lending conditions in response to regulatory pressures,” Kelly said. “Businesses are also responding to the commercial approach and flexible debt packages offered by the private debt segment, which increases the capacity to invest in growth initiatives.”

Venture capital, viewed separately from private equity, continued to boom in 2021. Aggregate deal value doubled year-on-year to $7.9 billion. Areas of investment focus were primarily early-stage businesses in the IT, consumer discretionary and financial services sectors. Fundraising was down with a total of $492 million raised by six funds compared with $2.6 billion raised by 13 funds in 2020. This, however, reflected the fact that two of the most established fund managers raised in 2020. Venture capital fundraising is expected to increase again in 2022 with several large fundraisings soon expected to close.