30,000 more Australian businesses can benefit from PE & VC investment
Tuesday 1 April 2014
Australian private equity and venture capital funds can play a significant role in supporting investment into around 30,000 more domestic businesses, according to the submission lodged today to the Financial System Inquiry by
the Australian Private Equity & Venture Capital Association Limited (AVCAL).
“Private equity funds are currently invested in fewer than 350 businesses in Australia – which means they presently have funding capacity to back less than two percent of the total investable pool of up to 30,000 businesses,” said AVCAL’s Chief Executive, Yasser El-Ansary.
The need to expand the availability of capital to support more Australian businesses in need of growth equity funding is one of the major components of AVCAL’s submission to the Financial System Inquiry.
“For Australian businesses that don’t have access to debt financing from banks, venture capital and private equity funds can help to provide capital and skills to expand business operations and deliver growth in productive output
and employment,” Mr El-Ansary said.
Other areas highlighted in the submission include the need to re-calibrate existing policy settings within the superannuation system to address the imbalance between investment in short-term high liquidity asset classes
(such as equities), versus long-term less liquid asset classes (such as private equity and venture capital).
“Our superannuation savings pool is a vitally important part of the foundation of our financial system now,” said Mr El-Ansary.
“But there is a very clear opportunity to remove roadblocks that deter some superannuation funds from backing private equity and venture capital firms to invest in Australian businesses,” he added.
Other policy reform options within the financial system identified by AVCAL in its submission include:
- Examining the merits of a liquidity ‘back-stop’ for superannuation funds, to facilitate the holding of higher asset allocations in long-term and less liquid asset classes;
- Assessing the potential impact of a loan funding scheme for small innovative businesses, modelled on the highly successful tertiary education ‘HECS loan’ scheme policy;
- Considering implementation of taxation reforms to encourage longer-term investment in assets through changes to the current capital gains tax rules to provide for more generous tax discounts based on five, ten or 15 year holding periods.
AVCAL will continue to actively participate in the consultation processes of the Financial System Inquiry over coming weeks and months to reinforce the importance of policy reforms that help to drive increased long-term investment into Australian businesses through the venture capital and private equity industry.
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Author: Adrian O’Shannessy, Director, Greenwoods & Herbert Smith Freehills