Inside Australia’s latest retail PE offering

Federation Asset Management – founded by a team of Macquarie alumni – has opened its fundraise to investors with at least A$20,000.

Federation Asset Management is the latest Australian firm to eye retail investors.

The Sydney-based company – founded last year by a team of Macquarie Capital alumni – is seeking A$300 million ($204 million; €184 million) to invest across private equity, real estate and renewable energy. Earlier this month it opened the raise to non-institutional investors.

It has tapped Australian private wealth management group Ord Minnett as lead arranger of the offering.

Federation joins the likes of Pengana Capital Group, which this year launched an Australia-listed investment trust investing in global and domestic private equity funds. Switzerland’s Partners Group also launched an Australian-listed investment trust focused on global private debt in June.

Investor base

The A$300 million feeder fund will have a A$20,000 minimum buy-in, head of private equity Neil Brown told Private Equity International. The fund is also expected to raise capital from sophisticated investors, family offices and institutions.

“The real estate and the renewables businesses are much more capital hungry; the opportunity set is a lot wider and you can deploy a lot of capital into those so we’re also raising more institutional capital to add to those individual strategies,” Brown said.

Each strategy will have its own pool of capital and the feeder vehicle will be deployed equally across these sub-funds.

Investment strategy

The private equity business is expected to deploy around A$20 million into Australian, Japanese, Singaporean and Taiwanese companies for up to 49 percent of their share register.

Federation completed two private equity investments in peer-to-peer lender RateSetter and carbon neutral delivery firm Sendle following an initial capital raise last year, according to its website. New investors will gain exposure to the existing portfolio.

Its renewables business will have similar geographic mandate to private equity, while the real estate unit will create real estate investment trusts comprised entirely of Australian properties.

Federation is targeting a 15 percent net internal rate of return and up to a 4 percent dividend yield over the life of the trust, according to a statement announcing the fundraise this month.

“We think individual real estate assets will deliver 8 percent to 9 percent on a levered yield basis, so we’ll also target a 3 percent yield on average over the life of a fund because it’s one-third of the fund,” Brown added.

Fund terms

Federation will charge a 1.6 percent management fee and 20 percent carried interest over an 8 percent hurdle, Brown said. The vehicle will have a five-year term.

“We’re certainly exploring options to provide liquidity to people who need it on an ad-hoc basis and that’s in the form of potentially a grey market through the broker, so effectively there [would] be liquidity if someone on the other side is interested in taking that stake,” Brown added.

“It’s also possible within that five-year term that the public market is a logical vehicle for the unlisted real estate investments. That would effectively mean those REITs are spun off into public markets and allow investors to effectively own shares in the listed vehicle.”

Team

Three of Federation’s four founding members were colleagues at Macquarie Group. Chief executive Cameron Brownjohn formerly led Macquarie Capital’s principal investment division for Australia and New Zealand, according to its website.

He is joined by head of renewable energy Stephen Panizza, who led the principal investment division in Asia, while Brown served as a former division director within the bank’s balance sheet investment arm.

The firm’s real estate unit is led by Jason Walter, a 15-year veteran of leasing, development and capital transactions. Greg Bundy, former chief operating officer of Merrill Lynch Asset Management and chief executive of Merrill Lynch in Australia, serves as chairman.