Australian private equity firms have a better proposition for LPs than emerging Asian managers when fundraising as their returns have been consistently better, delegates heard at the Australian Private Equity and Venture Capital Association Alpha 2013 conference.
Over a 15-year period, Australian private equity has returned a rate of 14.3 percent to investors, while emerging Asia has only returned 8.8 percent, according to AVCAL data presented at the conference. Over a three-year period the two returned 11.9 percent and 11.8 percent respectively.
Moreover, emerging Asian managers have a significant amount of their portfolios unrealised, which will likely bring down their returns as holding periods get longer.
“What [the data] doesn’t show is also [the volume of] exits. A lot of the returns that have been generated out of places like China and India are actually unrealised,” said Michael Lukin, managing director and global head of Macquarie Investment Management Group.
At the end of the day it is cash that matters and the ability to exit transactions in Australia from what we’re seeing is far superior to places like China and
Michael Lukin, managing director and global head, Macquarie Investment Management Group
“At the end of the day it is cash that matters and the ability to exit transactions in Australia from what we’re seeing is far superior to places like China and India.”
Australia’s exit environment is good at the moment, with a buoyant IPO market and trade buyers coming in from abroad, industry sources say.
However, one domestic LP said that investing in places like China is still attractive.
“Private equity in China is different to private equity here. Here it is much more about developed markets private equity. In China, you are looking at funds that may buy half a percent of a listed company or be involved in a PIPE [deal] and you get the same sort of thing in India. You just have to get comfortable with the fact that that is the way private equity is done in a jurisdiction like that,” he said.
“I think there is value provided you can find the right group. That group has to have certain connections at a political level, but they’ve also got to have genuine investment and operating expertise. But then you also have to stop and [mix] that country exposure to a more regional strategy as well.”