Australia remains tiny on a world scale for alternative investments, with
just 1-2 per cent of the global market, despite having consistently good
performance, particularly among private equity players. This is the view of
Mark O’Hare, the founder and chief executive of Preqin.
Speaking to more than 450 investors and managers in Australia and New
Zealand via webinar last week (October 28), O’Hare, who oversees possibly
the largest database of global research on alternatives, said Australian
general partners (GPs) were “very attractive” to overseas investors because
of their performance track records. “Investors continue to issue a
significant volume of RFPs which are open to Australian managers,” he said.
“North America and Asia are open for business.”
The median net IRR for private equity (PE) in North America, including
venture capital, was about 12 per cent, with a standard deviation of 9-10
per cent. Australian returns were very good, at nearly 13 per cent with
lower risk – a standard deviation of about 8 per cent. Hedge funds were
less favourable in Australia versus globally, he said.
Preqin, which was established in 2003 in London, opened an office in Sydney
early this year. It is headed up by Reuben Collins, who had serviced
Australia and New Zealand as head of sales from Singapore for a year, and
previously serviced EMEA from London. O’Hare said Australia was very
important to the firm.
“It’s a remarkably resilient economy and the world is as global as ever,
maybe more so for alternative investments. It’s important both as a
destination and a source of capital. That’s why we made an investment in
the office in Sydney, to be closer to the market and to help better
understand the data. Sydney, Dubai and Frankfurt are our newest offices.”
All private capital asset classes combined, including hedge funds, had
increased their assets under management three-fold to US$10.1 trillion over
the past decade, he said. By 2025 the total would be more than US$15
trillion. There was no decline in the number of funds seeking capital. By
contrast, Preqin tracks 601 Australian alternatives managers handling
“There are more funds than ever,” O’Hare said. “There are currently 5,765
funds seeking US$1.7 trillion… The amount of capital seeking has flatlined,
though, since the beginning of the year but a lot of this was due to
closures among some of the big funds (in their final raisings).”
For limited partners (investors, known as LPs in private markets), “they
are sticking with the program”, he said. According to the latest work from
Preqin on short-term intentions globally, 63 per cent report no change in
their commitments to alternatives, 14 per cent report a slight decrease, 7
per cent a significant decrease, 5 per cent a significant increase and 11
per cent a slight increase. “It’s by no means a blood bath,” he said.
Over the longer term, the same proportion report no change but 63 per cent
say they intend to invest significantly more. This is a familiar pattern
for the Preqin researchers. “LPs were telling us much the same thing in
2009 during the GFC,” O’Hare said. “There’s a difference with investors
showing some anxiety [in the short term]but a lot of confidence in the
In terms of the number of pools of capital, North America comfortably leads
the world with 6,547, compared with 2,935 in Western Europe, 2,504 in Asia
Pacific and 287 in Australia. A sample of the top investors in Australia
includes: AustralianSuper, HostPlus, UniSuper, CSC, ROC Partners, Sunsuper,
Tasplan, WA Super, MLC and Australia Post’s super fund.
Last week’s webinar was Preqin’s first for an Australasian audience. It was
organised jointly with the Australian Investment Council and included a
panel session with John Morris of HarbourVest, Mounir ‘Moose’ Guen of
MVision PE Advisers and Will MacAulay of HESTA.
Guen said that there was already a flight to safety before the pandemic
hit, which meant that investors tended to be US heavy and mega-fund heavy.
“There was a real sensitivity to capital protection, so very little extra
volume for smaller funds,” he said.
Morris said that Australia was one of the countries which his firm thought
of as promising. “We think we are being well rewarded with consistency of
performance. We started to invest in Australia in 1996 and have had a
steady allocation since. We have seven relationships and would like to
MacAulay, HESTA’s genral manager of unlisted assets, said his super fund
had not been “pushing money out the door” recently but most of its partners
were well-funded from raisings “a couple of years ago”.
He said most funds had constraints on liquidity and fees, both of which are
highly relevant for alternatives mandates. “Funds with larger scale can
deal with the complexity… I think we are seeing a bifurcation where the
growth is coming from a smaller group of investors becoming more active.”
On the climate generally, he said: “The global return environment for
pretty much everything has been horrible. At the end you have this little
asset class which is consistently delivering great returns. Why wouldn’t
you increase your allocation?”
Evidence of big investors not wanting to miss out on the next big thing to
emerge from private equity and venture is that there has been a general
rise in co-investments in all markets. Guen estimated that between 70-80
per cent of US investors were co-investing. This gave them a front seat for
later rounds of capital raising and perhaps other investing opportunities
from the same GP.
The full recording of the webinar and presentation slides are available on request from Preqin, click here to access.