Australia’s private wealth landscape is booming. Private equity, however, must be patient if it is to access this burgeoning pool of capital at any meaningful scale.
The number of Australian millionaires is estimated to have reached 635,000 last year, representing $2.77 trillion in investable assets, according to wealth management tech provider Praemium. That marks a 31 percent increase by number and 37 percent by wealth from the year prior.
Efforts to funnel this capital into the private markets have already begun. Pacific Equity Partners, for example, has launched a product targeted towards high-net-worth investors and self-managed superannuation funds, the Australian Financial Review reported in February. For those with A$100,000 ($68,900; €66,000) or more to spare, PEP Gateway will provide exposure to global and domestic PE funds, existing interests in PE funds, listed PE managers or listed PE funds, and direct investments or co-investments. It will include a mechanism to provide investors with liquidity.
PEP’s offering follows in the footsteps of Federation Asset Management, which in 2019 launched an alternatives vehicle with a A$20,000 minimum buy-in. The same year, Pengana Capital Group and Partners Group launched Australia-listed investment trusts, Pengana’s backing global and domestic PE funds, and Partners Group’s focused on global private debt.
There are also existing players, such as Sydney-based Global Alternative Funds, which aggregate capital from wealthy individuals to invest via limited partnership interests of international private equity funds, according to GAF’s website. Though GAF does not disclose the identity of the underlying fund or manager, opportunities listed on the site include a global secondaries vehicle with a $250,000 minimum buy-in for qualified purchasers, and a Northern European buyout fund with a $500,000 minimum for wholesale and qualified purchasers.
Rising appetites for private wealth capital are being catalysed by pressures on the institutional community, which is struggling to keep up with the pace and scale of fundraising, Federico Sgubbi, partner at Australian capital advisory and placement agent Allen Partners, tells Private Equity International. “Some LPs are having to pass on opportunities because they can’t handle the fundraising workload,” he says.
“Investment processes are much more complex for Australian superfunds than for HNWIs”
“Investment processes are much more complex for Australian superfunds than for high-net-worth individuals, especially for big tickets,” says Sgubbi. “Smaller tickets but quicker investment processes may be seen as an advantage, though obviously they will need to consider the additional costs associated with accessing private wealth capital through specific structures.”
KKR is among those hoping to capture Australian wealth. It appointed Nicholas Hyde – a former director at Australia’s IFM Investors – as head of client and partner group for the country in 2020. The move comes amid a wider push into private wealth globally, with the firm expecting inflows from this channel to increase from between 10-15 percent of annual fundraising to 30-50 percent over the next three years.
KKR currently offers three products for individual investors: first, its KKR Real Estate Select Trust, which provides access to KKR’s private commercial real estate platform globally across equity and credit investing; the second, KKR Credit Opportunities Portfolio, is designed to provide exposure across KKR’s strategies in leveraged and private credit with a single commitment.
Since last year, the firm has also managed a third such product: the iCapital KKR Private Markets Fund offers accredited investors exposure to KKR’s private equity strategies, including co-investments, primary funds and secondaries, with a $25,000 minimum investment, according to its website. Over the 12 months to 31 March, the fund generated a 15.79 percent return for Class I shares and 15.06 percent for the Class A shares, compared with 7.28 percent for the MSCI All Country World Index.
More wealth products are in the pipeline, KKR’s investor relations head Craig Larson said on a February earnings call. “We’re focusing on creating these new [democratised investment] solutions that are in a registered fund format and have much wider applicability within the private wealth channel.”
Developing Down Under
Hyde’s three-person team is planning to partner with an Australian asset management services provider to distribute its private equity and infrastructure products more efficiently throughout the market, he says.
“We’ve done a reasonably good job of connecting directly with all of the regular players in the Australian wealth market that you’d expect, such as the private banks, wealth firms and independent financial advice groups who can be either small in client number with large AUM or large in client number with smaller AUM,” Hyde says.
“But when it comes to the next phase, we’re also recognising that it’s a small team, and to do this well in Australia you need people able to frequently talk to these audiences. So, we’re increasing our engagement through content delivery across various platforms, and being more consistent in our communication to increase people’s knowledge of what KKR is doing in private equity, or alternatives more broadly.”
Education around alternatives, or a lack thereof, is often cited as one of the biggest obstacles to high-net-worth appetites for these asset classes. Though chunks of the Australian market are already broadly familiar with the idea, many of their experiences have been seen through a domestic lens.
“It can be a little binary,” Hyde says. “In the smaller family office or multi-family office space, they do have quite a lot of familiarity around private markets and private equity investor capital, but not necessarily with larger firms. I think smaller Australia-based VC firms, for instance, have been very successful in engaging and convincing them that there’s a place for it in their portfolio, but the KKRs of the world haven’t been knocking on their door. They’ve done a very good job of educating some of these platforms about the role of alternatives.”
This domestic bias is in part a result of regulation, with Australia one of the more complex markets in Asia-Pacific for cross-border fund distribution, according to Deloitte. Global firms hoping to raise capital from all corners of the Australian wealth market must do so in Australian dollars via a locally domiciled fund. KKR, for its part, is in the process of setting up a dedicated Australian feeder fund.
“If we want to make it ready for a broader audience here, then having an Australian vehicle is critical,” Hyde says. “It’s going to take a little bit longer. I’m actually hopeful that over a period of time that this requirement might fall away somewhat, because it is clumsy and takes time, but that is why we are setting up an Australian fund.”