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Family offices boost interest in private capital

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Family offices now account for more than a third of active investors in private capital.

A recent report by Preqin and the Australian Investment Council (AIC) has uncovered a significant surge in family offices engaging in active investment in private capital, rising from 7 per cent to 36 per cent in 2023 over the past four years.

The count of Australia-based family offices actively investing has surged to eight times its level four years ago, whereas the number of superannuation funds pursuing a similar strategy has more than halved.

Namely, the report revealed that super funds now account for just 20 per cent of all Australia-based private capital investors, mostly due to a trend of mergers between funds and their need to invest at scale.

Overall, the report, which tracks activity in the Australian private capital industry, revealed that Australia-focused private capital assets under management (AUM) reached $139 billion in June last year, up 33 per cent from 18 months prior.

The growth underscored domestic and international investor appetite to seek returns by investing in Australian ideas, businesses, and assets.

“Compared with long-term averages, the private capital industry has proven to be resilient, notwithstanding more subdued global market and economic conditions,” said Navleen Prasad, chief executive officer at Australian Investment Council.

“While 2021 and 2022 offered more buoyant conditions, the long-term comparison is important given private capital is patient capital. This long-term resilience underscores strong industry fundamentals and Australia’s merits as a place for private capital investment.”

Following a record year 2021–22, fundraising among Australia-focused private capital funds moderated in 2023, with an aggregate value of $10 billion raised by 37 funds.

The value was 43 per cent lower than that raised in 2022, but when compared with the five-year average of $8.1 billion for the pre-pandemic years of 2015–19, fundraising activity in 2023 was labelled as “robust”.

Real estate tops interest

The largest private capital asset class in the period to June 2023 was real estate following an AUM boost of 28 per cent in the six months from December 2022, to a total of $55.7 billion.

Meanwhile, private equity and venture capital (VC) recorded a combined AUM of $65.5 billion – $45.5 billion for private equity and $20 billion for VC. The former remained the second largest private capital asset class, with AUM rising from $41.5 billion at the end of 2022, despite a slowdown in fundraising for the asset class due to the impact of rising interest rates.

Regarding VC, the report found 260 VC deals were completed with an aggregate value of $3.8 billion invested in 2023.

Moreover, Preqin reported a global improvement in sentiment towards venture capital performance, highlighting that 10 per cent of surveyed investors now view Australia and New Zealand as offering the best opportunities in VC, doubling from 5 per cent in previous years.

The report also pointed to the increasing popularity of private debt supported by robust deal activity and tighter lending conditions among traditional debt providers. As of June 2023, private debt AUM stood at $1.8 billion.

Prasad underscored that while private capital currently contributes 3 per cent to Australia’s GDP, based on the US and UK experience, it has the potential to double that contribution.

“The challenge for Australia, in a globally competitive market for patient capital, is to ensure that its regulatory and legislative frameworks remain efficient, effective and flexible enough to enable investment in start-ups and growth businesses,” said Prasad.

“It is these businesses that will give Australia a more dynamic and future-proofed economy as well as supporting incumbent industries adapt to a changing world.”