Listed equities surpass PE returns in Australia

Although private equity returns continued to beat public markets over three- and five-year horizons, listed equities outperformed the asset class during 2012, according to Cambridge Associates.

Private equity returns in Australia outperformed the country’s top 300 listed companies over the three- and five-year horizons up to December 2012, according to a joint study by Cambridge Associates and the Australian Private Equity and Venture Capital Association (AVCAL). 

Private equity posted returns of 6.88 percent and 2.83 percent net of fees during the previous three- and five-years, compared to returns of 2.8 percent and -1.81 percent for listed equities, respectively.

However, while private equity has consistently delivered better returns than listed equities over those time periods, during 2012, listed equity markets in Australia surged, overtaking private equity performance. The ASX 300 returns increased by 19.74 percent year-on-year compared to private equity returns that increased by just 5.78 percent in Australian dollar terms during the same period. 

Australian private equity and venture capital have fared well in 2012, despite mid-year challenges… Looking forward it will be interesting to see whether public markets will bolster private investment performance in 2013.

Eugene Snyman, managing director, Cambridge Associates

“Australian private equity and venture capital have fared well in 2012, despite mid-year challenges,” according to Eugene Snyman, managing director at Cambridge Associates in Sydney. He explained to Private Equity International, “In the second and third quarter, the public markets were fairly soft and they've obviously rebounded very strongly.”

Snyman adds that the slowdown was caused by declining consumer confidence, in particular in the consumer and industrials sectors.

“Australian private equity managers are far more overweight with consumer companies and industrial companies and significantly underweight with financials. So the slowdown in the economy, the high Aussie dollar, all of that has had a particularly strong impact on sectors that are pretty prominent in Australian private equity portfolios.”

However, AVCAL chief executive Katherine Woodthorpe believes private equity will continue to provide better results in the long-term.

She told PEI, “If you look at all of the long-term [horizons], returns are still very strong and it really is just the one year performance and everyone knows that last year the [listed] markets went crazy correcting an awful lot of [the downturn]. Particularly when you look at the 15-year horizon, if you're an investor you want [to invest in] something non-volatile and the critical thing about the public markets is they've just been completely volatile. Private equity has been the stable performer.”

The report from Cambridge Associates and AVCAL is based on data compiled from 63 Australia private equity and 23 Australia venture capital funds. The figures show their pooled end-to-end return, net of fees, expenses, and carried interest.