2019 Performance Highlights
Australian private equity and venture capital represents nearly $30
billion of capital raised over 20 years across 108 funds – forming a
well-established industry built on robust growth over time.
Strong Long-term Performance:
Australian private equity and venture capital has delivered strong
long-term net of fees performance for investors, achieving over 4% of
outperformance versus the ASX 300 for the 5, 10, and 20-year periods
ending 31 December 2019. Long-term performance of the local market has
remained compelling among global peers.
Calendar year 2019 proved to be another active year for Australian
private equity and venture capital investments with over $1 billion
invested into Australian and New Zealand companies and distributions in
excess of $1.2 billion, net of fees, returned back to investors during
the year. Investments in industrials, IT, and healthcare sectors
dominated activity during the year.
Snapshot of Australian Private Equity and Venture Capital in
As we entered 2020, the Cambridge Associates Australian Private Equity
(PE) and Venture Capital (VC) index represented $9 billion of current
market value, with an estimated $5.7 billion in “dry powder” available
for further investment into local companies. Consumer and healthcare
sectors have continued to dominate investment exposures, representing
over 57% of the current market value of the Index.
Tremendous growth over 20 years has driven Australian private equity and
venture capital (PE/VC) from a handful of funds operating locally in 1999
to a well-established industry today comprising of both local and global
PE/VC firms. At the end of the 2019 calendar year, the Cambridge Associates
Australian PE/VC Index represented $29.4 billion of capital raised by 108
PE/VC funds. Over the 20-year period of data captured by the Index the
industry has invested $23.7 billion in Australian and New Zealand
companies, returning $27.5 billion net of fees back to investors and still
holding unrealised investments valued at $9.0 billion. While invested
capital has grown 2.6 times since 2009, realisations have grown 6.2 times
in the same period. The table below (Figure 1) reflects the 20-year growth
of the local market into a well-established PE/VC industry.
Strong Long-Term Performance
Australian PE and VC demonstrates strong returns to investors across
long-term time horizons, delivering double digit net of fees returns over
5, 10, and 20 -year periods (Figure 2). Over these same periods, Australian
PE/VC managers in aggregate outperformed the ASX 300 Index by +4.3% to
+6.1% and the ASX Small Ordinaries Indices by +2.1% to +9.5% on a public
market equivalent (mPME) basis. To measure mPME, Cambridge Associates
compares private equity performance to that of listed equities by
hypothetically ‘investing’ in the ASX 300 and the ASX Small Ordinaries at
the same time and equivalent amount as the private equity investments.
However, investors do not buy the index in PE and manager selection matters
in performance results. The importance of manager selection is illustrated
in the data gathered by Cambridge Associates which shows the top two
quartiles of Australian PE/VC funds have delivered 19%+ annualised returns
over 5, 10, and 20-year periods ending 31 December 2019 (22.6%, 19.2%, and
24.9% respectively net of fees and carried interest). This universe exceeds
returns of the broad Australian PE/VC industry by +6.5% to +11.7% per annum
Australian private equity and venture capital returns outpaced global peers
in Australian dollars over 20 years (Figure 3). However, over 5 and 10-year
periods Australian performance lags global PE and VC in Australian dollars.
Some of the shorter-term performance can be attributed to currency impacts
over these periods, as well as local market factors including interest
rates and valuations. For example, when reviewed in local currency (USD)
terms, US private equity and venture capital returned 13.7% and 15.6% for
the 5 and 10-year periods, respectively. Nonetheless, Australian PE/VC
performance is competitive among global peers.
2019 Year in Review
Private equity and venture capital performance is measured over the medium
to long-term (5- to 20-year periods) to align performance with the strategy
of acquiring and divesting investment assets. Measuring the industry cash
flows over a 12-month period provides a snapshot of the year in review but
is not a meaningful indicator for a long-term asset class.
During 2019, the Cambridge Associates Australian PE and VC Index returned
9.6% for the year, which lagged a 24.1% return from the ASX 300 Index
public market equivalent as shown in Figure 4. It is important to note that
88% of net value creation for the year comes from PE/VC funds still within
their investment period (vintage years 2014 to 2019), which includes recent
vintage years (2017, 2018, and 2019) that are early in the investment
period where returns are not yet considered to be meaningful.
This universe is historically dominated by buyout and growth equity
strategies, representing 93% of total capitalisation, while venture capital
funds represent 7% of the index by capitalisation. During the year, PE and
VC returns were driven by industrials, IT, and healthcare and were tempered
by performance in consumer staples and financials. Since its inception,
over 80% of returns from the industry have been driven by investments in
four sectors: consumer, industrials, healthcare, and IT. While the ASX 300
has been dominated by financials and materials, private equity has offered
investors differentiated sector exposure and investments outside publicly
The industry invested $1 billion into Australian and New Zealand companies
during 2019. This is in line with prior years, which have averaged $1.3
billion per year (since 2009). In 2019, 72% of investment went into four
sectors: consumer discretionary, healthcare, industrials, and materials.
Nearly 80% of investment went to Australian companies, while New Zealand
companies received 19% with the residual invested outside of the region –
broadly in line with PE and VC investment between the regions over time.
Realisations and Distributions
Investors received net of fees distributions of $1.2 billion from
Australian PE/VC managers during the calendar year 2019, lower than the
average $2.3 billion per year since 2016. In total, 60% of distributions
for 2019 came from fund vintage years 2012-2015 and venture capital
delivered 15% of the 2019 distributions. Realisations from consumer sector
companies delivered 70% of capital for the year, with an additional 23% of
realisations resulting from investments in the healthcare and IT sectors.
Snapshot of the Industry in 2020 and Looking Ahead
Heading into 2020, the Australian PE and VC current market value stood at
$9 billion at 31 December 2019. Buyout and growth equity investments represented 83% of asset values, with 16% in venture capital investments.
The vast majority (88%) of the current market value is held by 2011- 2019
vintage year funds. Geographic exposures stand at 76% Australian companies
and 16% New Zealand, with 8% invested outside of the region, predominately
in the US. Consumer and Healthcare investments continued to be dominant
exposures across the industry, representing over 50% of net asset value
Performance data for the index in the March 2020 quarter will include early
and initial valuation impacts of COVID-19. Of the $29.4 billion of capital
raised by the industry to date, approximately $5.7 billion remains as
estimated “dry powder”. Though the broader impact and opportunity for
Australian private equity and venture capital will only be captured in
investment values and realisations over time, the well-established industry
reflects a pool of capital capable of achieving outstanding long-term
returns above public markets, while providing differentiated sector
exposures, as well as access to smaller and private companies.
Eugene Snyman is a Partner and Managing Director at Cambridge
Associates with over 25 years of investment experience. He is
responsible for managing the firm’s Sydney office and overseeing the
firm’s Australasian client practice.
Margaret Schlott is a Senior Investment Director in the firm’s Sydney
office with over 18 years of investment experience. She contributes to
the firm’s research on private investment managers, the Australian and
New Zealand private investment benchmarking data, and works with
clients in the region.
Unless otherwise noted, all data represents the Cambridge Associates
Australian Private Equity and Venture Capital Index as of 31 December 2019
and is reported in Australian dollars. To compile its performance data for
the industry, independent investment firm Cambridge Associates has access
to numbers from the audited financial records of fund managers which
enables it to accurately calculate fund level returns net of all fees and
expenses. The Cambridge Associates Australian Private Equity and Venture
Capital Index performance figures are calculated by aggregating all cash
flows as if they applied to a single fund to provide industry performance.
The Index is published quarterly, and the data is available from the
Australian Investment Council.
About Cambridge Associates
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pension plans, endowments & foundations, healthcare systems, and
private clients implement and manage custom investment portfolios to
generate outperformance so they can maximize their impact on the world.
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helped to shape and implement investment best practices and built strong
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