A new report by Preqin and the Australian Investment Council (AIC) has revealed that Australia-focused private capital assets under management (AUM) reached a record $118 billion in September last year, up 21 per cent on nine months earlier.
Despite global macroeconomic headwinds over the period, Australia-focused private equity and venture capital funds were both reported to have raised record amounts during FY22.
Thirteen private equity funds raised $9.0 billion, more than double the amount raised in FY21, while 17 VC funds raised $2.7 billion, or almost four times as much as in FY21.
Preqin and the AIC noted that local superannuation funds comprised 28 per cent of all private capital investors in FY22, down from 42 per cent in FY18, on the back of industry consolidation as well as higher participation by other investor types.
The firms said that high-net-worth individuals, family offices, and wealth managers were increasingly involved in fundraising activity, all of whom were said to be attracted to the proven benefits of diversification, hedging characteristics, and exposure to higher returns.
“It is pleasing to see such strong investor support for Australian private capital, and private equity, venture capital and private credit in particular,” said AIC chief executive officer Navleen Prasad.
“In a globally competitive market, Australia offers a relatively stable regulatory and legislative environment as well as access to high-quality talent pools and a gateway to Asian markets.”
Real estate remains the largest Australia-focused private capital asset class with $44.4 billion in AUM, followed by private equity ($41.7 billion), and VC ($17.9 billion).
The report by Preqin and the AIC also drew attention to a record amount of undeployed capital, with $37 billion available for investment in Australia, 17 per cent higher than in FY21.
Ms Prasad pointed out that the global economic and market environment had become more uncertain since the end of the last financial year, which she said was expected to result in some impacts on private capital investment.
“While Australia’s economy has been relatively resilient to date, uncertainty does impact a range of investment dynamics such as the types of investments being made, and the time taken to make investment decisions,” she said.
“While there was substantial fundraising activity last year, we anticipate that activity to moderate this year and investment managers will be even more discerning as they seek opportunities to invest record levels of undeployed capital. That said, we believe that high-quality assets with strong fundamentals and robust growth prospects will continue to be attractive to investors.”
Democratisation to drive private market growth
Separately, Hamilton Lane vice chairman Erik Hirsch said in a recent note that private markets were becoming increasingly accessible to individual investors who have traditionally invested in public stock markets like the ASX.
“Democratisation will be the biggest driver of all in private markets going forward,” he predicted.
“It is also about how people expect to transact in today’s world. We are accustomed to being able to buy anything on our phones — including shares of a stock — and we are accustomed to rapid access to information.”
Mr Hirsch noted that Hamilton Lane had made investments in a number of businesses which provide individual investors with access to private markets, including Singapore-based ADDX and US-based Securitize.
“We’ve partnered with these companies to offer some of the same private markets funds that institutions are investing in,” he said.
“These have been converted into digital securities but remain regulated by the appropriate bodies in their respective jurisdiction and are available to accredited investors in these jurisdictions.”
Meanwhile, a survey by State Street earlier this year found that 68 per cent of institutional investors planned to continue their allocation to private markets in line with their targets, despite acknowledging that rising interest rates reduced the attractiveness of the asset class.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.