Australian PE continues to outshine public equities

GPs are performing better than the capital markets, but are set for lower returns than last year

Returns from Australian private equity firms so far this year have continued to exceed those of public market investments both in the most recent quarter recorded and year-to-date.

During the first three quarters of the year, Australian private equity funds returned 8.63 percent on an Australian dollar end-to-end pooled return basis, according to the Australian Private Equity and Venture Capital Fund Index and Selected Benchmark by AVCAL and Cambridge Associates.

In contrast, year-to-date the S&P/ASX 300 index has returned just 2.86 percent indicating that public market returns in the country continue to lag those of private equity investors.

While the industry will again top returns of public market counterparts, figures show that 2014 returns from private equity investors will not reach numbers from last year.

In 2013, private equity and venture capital produced an average return of 22 percent IRR during 2013, showing that GPs outperformed public markets by over 200 basis points.

Firms have now returned 22 percent, 12.94 percent and 10.07 percent on a one-, three-, and ten-year basis respectively. The ASX index shows public markets investments returned a 17.25 percent, 9.95 percent and 8.85 percent over those same time periods.

Australia’s private equity industry has seen a strong revival over the past 12 months, with capital markets reopening for IPO exits, as well as leverage availability improving, setting the scene for a number of refinancings and dividend recapitalisations.

“These latest returns continue to show that Australian PE and VC are consistently outperforming the listed market across all time horizons, including 15-year returns,” Kar Mei Tang, head of policy and research at AVCAL, told Private Equity International. 

“This latest data included record distributions back to LPs, this was the highest distribution in a twelve month period since Cambridge Associates began compiling returns in 1997. In the second quarter of 2014 alone, there were seven PE-backed IPOs on the ASX, as well as a number of successful VC exits, which boosted returns for that quarter.” 

The Cambridge Associates and AVCAL benchmark was established in 1997. As of June this year, 60 private equity and 25 venture capital funds investing in Australia and New Zealand were included in the sample.