Lower and mid-markets tech businesses to outperform

The greatest private equity investment opportunities in Australia over the next 12 months will be in the lower and mid-markets, according to locally-based global assets manager IFM Investors.

These are the areas where the largest numbers of businesses are growing and innovating, according to IFM.

The firm’s global head of private equity Stuart Wardman-Browne said: “The sectors we deem inherently high-growth in the coming year are software, tech-enabled services and healthcare.”

To invest in companies within these sectors, IFM requires evidence that business models are well proven and there are accessible opportunities for growth, Wardman-Browne added.

In IFM’s Private Markets Outlook for 2025, the firm’s chief economist Alex Joiner notes that despite public markets closing out 2024 at near all-time highs, investors are faced with uncertainties in 2025.

“2025 will likely see political and geopolitical risk awarded equal importance, as the world weighs up the impact of the incoming US administration on trade policy, but also the ongoing wars in Ukraine and the Middle East,” Joiner said.  

“How the US administration deals with actual, as opposed to economic, conflicts – notably Russia-Ukraine and in the Middle East – will also inject uncertainty into the outlook.” 

The Private Markets Outlook also expects:  

• Sub-investment grade debt opportunities to earn 350-600bps above prevailing interest rates dependent on region and sub-sector, and 150-350bps for investment-grade debt opportunities. This is despite continuing tightening in corporate credit spreads.   

• Data centres to remain a crucial growth market, with data centre traffic set to reach 49.7 zettabytes in 2025, continuing a compound annual growth rate of around 25% witnessed since 2016.  

 Joiner said the private markets macro-economic outlook had to consider the potential impact of the incoming US administration under President Donald Trump introducing corporate tax cuts and tariffs on goods imported from China.

“Investors will need to consider the growth and inflationary implications of these (and other) policies collectively – an impossible task as it stands,” he said.   

Expected tailwinds include improving economic conditions, robust government spending and support for infrastructure, decarbonisation efforts, rapidly expanding electricity demand, and the need for more and improved digital infrastructure.  

“These projects often remain resilient during economic cycles due to their essential nature,” Joiner said.  

The Outlook predicts that, as countries continue to decarbonise energy grids and transport, there will be growing opportunities to invest in enabling infrastructure – such as electricity transmission.  

There will also be global appetite for connecting emerging renewable projects to the grid and charging infrastructure for the growing number of electric vehicles on the roads.  

IFM expects data centres will continue to experience rapid growth and ongoing investment interest following on from a number of high-profile transactions over the last two years.  

On private credit, IFM’s Outlook finds 2025 is beginning with a private credit environment that is much more attractive than many would have expected even 12 months ago.  

Co-head of Australian diversified credit Lillian Nunez said: “We now predict a scenario where base rates will likely remain relatively high throughout the year, with the first rate cut not expected before May, and for credit spreads to remain elevated, allowing for an all-in risk premium that will offer private credit lenders attractive returns.” 

Co-Head of Australian Diversified Credit, Hiran Wanigasekera added: “We seek to invest across the Australian economy, so the improving economic outlook – one that sees a rising tide lifting all boats – is a positive and will drive business confidence and see a greater number of corporates re-invest in their own growth.”

IFM Investors is owned by some of Australia’s largest industry superannuation funds and invests on behalf of these funds and overseas investment institutions. The firm had more than $221 billion under management as at 30 September.

Image: IFM Investors global head of private equity Stuart Wardman-Browne.