Aggregate capital raised in the year to 30 June 2022 (FY22) by Australian private equity and venture capital funds more than doubled and quadrupled compared to fundraising in the previous year, according to the Australian Private Capital Market Overview 2023 from Preqin and the Australian Investment Council.
The report confirms that in FY22, private equity funds raised AUD9 billion and venture capital raised AUD2.7 billion.
Fund inflows were not limited to institutional funds; Australian superannuation funds in 2022 comprised 28% of all private capital investors, down from 42% in 2018, driven by the consolidation of funds that has occurred at a rapid pace. Increasingly, fundraising activity includes high-net-worth individuals, family offices, and wealth managers, all of whom are attracted by the proven benefits of diversification, hedging characteristics, and exposure to higher returns.
Funds raised in FY22 take assets under management (AUM) across private equity, venture capital, private credit, infrastructure, real estate and natural resources to a record AUD118 billion. This underscores domestic and international investor appetite to seek returns by investing in Australian ideas, businesses, and assets. The report also confirmed there is a record amount of undeployed capital, with AUD37 billion available for investment in Australia, up by 17% on FY21.
Private equity, venture capital and private credit account for more than 50% (AUD61.7 billion) of that AUD118 billion of AUM, outweighing private capital allocated to Australian infrastructure, natural resources and real estate combined (AUD56.6 billion).
Australia’s emerging private debt industry grew steadily in 2022 supported by robust deal activity and tighter lending conditions amongst traditional debt providers. As interest rate pressures remain priced into markets, private debt facilities remain an attractive funding facility for investors.
The nation’s venture capital sector remained resilient despite more challenging market conditions; 338 venture capital deals were completed with an aggregate value of AUD5.6 billion invested in 2022, seed or pre-seed deals continue to remain central to the focus of major venture capital funds.
In a sign that international investors have found Australia to be an attractive investment destination for alternative assets over the long term, foreign investment has grown considerably over the past two decades, accounting for 46% of active investors committing to Australian-based funds of vintages 2018 to 2022, compared to 18% in funds of vintages up to 2002. Among foreign investors, North America accounts for the highest proportion at 25% of all active investors.
Australian-focused private capital funds delivered a median net Internal Rate of Return (IRR) of 14.9%, in line with Europe, and slightly below Asia and North America. Private capital’s positive returns contrast with negative returns for Australian equities (shares) and fixed income (bonds), building a strong case for alternative assets in a diversified investor portfolio.
Australia’s alternative assets industry continues to see opportunities arising from developing new technologies and infrastructure that support the energy transition. The country continues to lead its peers in APAC in ESG investing, with 212 UN PRI signatories, and its regulators have continued to scrutinise and combat greenwashing. These developments will draw responsible investors to allocate more towards assets in Australia.
