Katherine Woodthorpe might be a little tired, but no doubt relieved at a big job well done. As CEO of the Australian Private Equity & Venture Capital Association (AVCAL), Woodthorpe has overseen the production of a weighty 100-page tome entitled “Private Equity in Australia” in the space of just a month. The document forms part of AVCAL's submission to the Australian Senate's Standing Committee on Economics, which is examining the contribution of private equity to Australia's economy and capital markets and whether the asset class may require new legislation. The Committee will report its findings to the Senate in August.
AVCAL has made sure it has done its homework. Woodthorpe told PEI: “We decided to take the opportunity to produce a report that went further than just answering the terms of reference.” This can only be viewed as circumspect given the hostile reception granted to AVCAL's British equivalent the BVCA during its now infamous grilling by the UK Parliament's Treasury Select Committee in June.
One cannot fail to be impressed by the report, possessing as it does genuine gravitas. From the rationale of private equity to current trends, and from its interaction with capital markets to the basis of the tax and regulatory framework within which it operates, no stone is left unturned. The points made by the report are concise, well executed and supported by data drawn from wideranging sources from around the world. It also features in-depth studies by leading consultants of private equity's impact in three key areas: AT Kearney (employment), PricewaterhouseCoopers (the economy) and Meyrick & Associates (productivity growth). It seems safe to say that rarely can a national association have gone to such lengths to try and convince legislators of private equity's merits.
The report does not spare the rainforests in making the case for the benefits that private equity brings to Australia: more jobs, more growth, more revenues, happy pensioners et cetera. But it also painstakingly makes the point, a little paradoxically perhaps, that Australian private equity is still a small asset class, with limited influence on the economy overall.
Consider, for example, the following excerpt: “Interest in a small number of well known publicly listed Australian companies has led to the incorrect perception that private equity is a large part of the Australian economy. In fact, in calendar year 2006, the value of all businesses purchased by private equity was equivalent to less than 1.4 percent of the value of all businesses listed on the Australian Securities Exchange (ASX).”
On a page entitled “Facts as a glance”, which provides key points about the industry, this tendency towards humility is further elaborated as follows: only 3 percent of total loans in the Australian banking system are to private equity-backed businesses; just 2 percent of Australian superannuation [capital] is invested in private equity; a mere 2 of the 78 companies that de-listed from the ASX in 2006 did so as a result of a private equity transaction; and private equity activity in Australia, at approximately 20 percent of total merger and acquisition activity, was half the corresponding level in the US and the UK.
The point being made appears to be this: you don't need to over-regulate us, because we're too tiny to do any harm. There may be something of a contradiction here: the argument of not being meaningful enough to make any real difference sits a bit awkwardly alongside the report's manifold examples of Australian private equity's many benevolent influences. Readers may be wondering: how extensive can these benefits really be when private equity is so small?
Besides, depending on what happens next in Australia, it is conceivable that private equity will continue to rapidly grow in size. Proposed buyouts of national airline Qantas (A$9 billion) and leading supermarket chain Coles Myer (A$14 billion) have failed to complete, but they demonstrated that Australian assets of this size are very much on the radar of the big beasts of the buyout jungle. Some will no doubt reach the finishing line before long – possibly even before the Senate hearing in August. The trade body may then find it more difficult to uphold the assertion that private equity in Australia is still only little.
Nevertheless, the AVCAL report is a milestone document. Woodthorpe and her colleagues set out “to inform and educate all stakeholders who might have an interest in private equity”. At a time when private equity is being grossly misunderstood in many markets, this is now a top priority for industry advocates everywhere.