Key Takeaways
- • Australian-focused private equity funds held around $66 billion in assets under management as at June 2023, roughly 2.6 per cent of GDP, nearly tripling since 2010 according to the Reserve Bank of Australia.
- • Aggregate capital raised by Australia-focused private equity funds hit a record $11.7 billion in 2022, against a $4.1 billion annual average over the prior decade (inflation-adjusted to 2022).
- • Total private equity deal value involving Australian companies reached a record $57 billion (2.3 per cent of GDP) in 2022, driven largely by a small number of large leveraged buyouts.
- • Private equity activity has declined since 2023 as higher borrowing costs raised debt servicing burdens, mirroring trends in other developed equity markets.
- • Buyouts have concentrated in industrials and utilities, including the roughly $25 billion Sydney Airport acquisition, while venture capital deals (nearly 500 worth $8.5 billion since 2020) concentrate in IT.
Summary
The Reserve Bank of Australia's April 2024 bulletin examines the growth and recent contraction of the Australian private equity market. Assets under management in Australian-focused private equity funds, both domestic and foreign, were around $66 billion as at June 2023, representing 2.6 per cent of GDP. Of this, roughly $44 billion was already invested in Australian companies and $22 billion remained uncalled for investment. Nominal AUM grew about 75 per cent from December 2019 to June 2023, with notable growth in venture capital funds. Although the market remains much smaller than the ASX, whose listed companies have a combined market capitalisation of $2.7 trillion, the bulletin notes that private equity fundraising has been a meaningful driver of expansion.
Fundraising reached a record $11.7 billion in 2022, far above the $4.1 billion inflation-adjusted annual average of the prior decade and well above the roughly $1 billion raised through IPOs in 2022, against a $9.8 billion prior-decade IPO average. Institutional investors, particularly superannuation funds and foreign institutions, are the main external limited partners, reflecting high minimum subscriptions and long lock-up periods.
Deal value followed the same pattern, reaching a record $57 billion (2.3 per cent of GDP) in 2022, largely driven by a small number of large leveraged buyouts. Since 2023, activity has declined, partly due to higher debt servicing costs. The bulletin notes this mirrors trends in other developed equity markets, which likewise saw elevated activity during the pandemic recovery, supported by low interest rates and strong corporate balance sheets.
Sector patterns differ sharply. Since 2020, buyout value has been concentrated in industrials and utilities, whose stable cash flows suit debt-funded acquisitions. Notable deals include the roughly $25 billion Sydney Airport acquisition, DP World Australia ($6 billion), AusNet ($10 billion), Spark Infrastructure ($5 billion), Crown Resorts ($9 billion) and Vocus Group ($3.5 billion). Venture capital activity, by contrast, is concentrated in IT, with nearly 500 deals worth a collective $8.5 billion since 2020, including later-stage rounds for Simpro ($500 million) and Canva ($450 million). The bulletin characterises IT as a sector with high but uncertain growth prospects, which justifies diversification across developing companies.
Fundraising reached a record $11.7 billion in 2022, far above the $4.1 billion inflation-adjusted annual average of the prior decade and well above the roughly $1 billion raised through IPOs in 2022, against a $9.8 billion prior-decade IPO average. Institutional investors, particularly superannuation funds and foreign institutions, are the main external limited partners, reflecting high minimum subscriptions and long lock-up periods.
Deal value followed the same pattern, reaching a record $57 billion (2.3 per cent of GDP) in 2022, largely driven by a small number of large leveraged buyouts. Since 2023, activity has declined, partly due to higher debt servicing costs. The bulletin notes this mirrors trends in other developed equity markets, which likewise saw elevated activity during the pandemic recovery, supported by low interest rates and strong corporate balance sheets.
Sector patterns differ sharply. Since 2020, buyout value has been concentrated in industrials and utilities, whose stable cash flows suit debt-funded acquisitions. Notable deals include the roughly $25 billion Sydney Airport acquisition, DP World Australia ($6 billion), AusNet ($10 billion), Spark Infrastructure ($5 billion), Crown Resorts ($9 billion) and Vocus Group ($3.5 billion). Venture capital activity, by contrast, is concentrated in IT, with nearly 500 deals worth a collective $8.5 billion since 2020, including later-stage rounds for Simpro ($500 million) and Canva ($450 million). The bulletin characterises IT as a sector with high but uncertain growth prospects, which justifies diversification across developing companies.
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