Secondaries action slow in Australia

Asia Pacific’s most developed private equity market has comparatively fewer secondary transactions due to the country’s robust pension system.

Australia’s private equity secondaries market offers fewer opportunities than the rest of Asia as LPs in the country are rarely forced to sell assets at low prices, according to Hugh Dyus, head of Asian private equity at Macquarie Funds Group. 

Dyus explained to Private Equity International that Australia’s superannuation funds – which make up the country’s main LP base – have consistently strong financial positions as Australian employers pay approximately 9 percent of each employee's salary into a superannuation fund. 

As a result, “[Superannuation funds] tend not to dump assets at distressed prices. Their approach to selling assets would be [that they are] potentially available, but only at an acceptable price,” a position that often does not lead to an actual sale, he added. 

Neal Costello, Hong Kong-based principal at AlpInvest, agrees. “[Australian LP] are very sensitive to taking a discount on pricing,” he said, adding that if they do go to market with assets, a 1 to 3 percent discounted offer can be expected. 

“There haven’t been as many [deals] completed as you would think given the relative maturity of the programmes in Australia. [In comparison] in other regions, such as China and India, you are seeing deals with larger discounts. This is in large part due to sellers' desire to achieve liquidity given what is going on in the macro sense with these regions. If you have an Australian seller of an Australian asset, that is when the seller is going to be very price sensitive.”

However, the Australian market is not entirely dry of secondary deals, says Stephen Sloan, co-founder and managing partner of Cogent Partners. Deals are not liquidity driven and therefore may be more expensive. But mature LPs increasingly understand how to use the secondaries market as a way to manage their portfolios.

“Australia is becoming more mature and active in terms of secondary activity.  Institutions have come up the learning curve and are not only exploring secondary sales but also becoming more active on the buy side,” Sloan said.

“Most secondary sales are not liquidity driven, but rather active portfolio management decisions. As such most institutions will not sell at deep discounts and therefore there is still a meaningful pricing gap between what institutions would like to sell and what discounts they are willing to accept.”

Costello, too, sees some activity in the market by international LPs holding Australian assets. “If you have sellers that are not in Australia looking to sell Australian assets, there is more willingness to negotiate on price and those are the [deals] that are getting done.”

Secondaries firms globally are continuing to strengthen their capabilities in the Asia-Pacific region. In March, LGT Capital Partners opened its first mainland China office in Beijing only a month after closing its latest global secondaries fund at $2 billion. Secondaries firms including NewQuest Capital Partners, Lexington Partners and Cogent Partners are among those that have enhanced their presence in Asia over the last 12 months. 

However, these firms are heavily focused on the higher discounts offered by emerging Asia and less interested in more developed markets like Australia.