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Australian private capital industry surges 33%

Australia's private capital market has grown 33% over the past 18 months, with assets under management (AUM) now reaching $139 billion.

Preqin and the Australian Investment Council released the 2024 Australian Private Capital Market Yearbook which tracks activity in the private capital industry.

The report found private equity and venture capital (VC) has a combined AUM of $65.5 billion, as of June 2023, which was 30% higher than in December 2021.

Real estate AUM grew by 28% from December 2022 to June 2023 to become the largest asset class with $55.7 billion in AUM.

Preqin said the growth trend underscored domestic and international investor appetite to seek returns by investing in Australian ideas, businesses, and assets.

Fundraising amongst Australia-focused private capital funds moderated in 2023, compared with record levels in 2021 to 2022, but continued at levels in line with pre-pandemic norms, with an aggregate value of $10 billion raised.

"A general trend has emerged where, in a more subdued global and market environment, more capital is being committed to fewer, but more experienced, fund managers," Preqin said.

Of all active Australia-based private capital investors, the proportion of family offices increased from 7% to 36% from 2019 to 2023, according to Preqin's database.

The number of Australia-based family offices tracked by Preqin to be actively investing is now eight times the number it was over the same period.

The report also found higher interest rates increased pressure on margins for private equity firms, and this was particularly the case for leveraged buyouts.

In 2023, Australian private equity-backed buyout deal value reached $13.2 billion, around one-fifth of the value in 2022. However, when compared to the five-year average of $14.2 billion from 2015 to 2019, the deal value for 2023 was 6.8% lower.

Australia's emerging private debt industry showed strong signs of growth in 2023, supported by robust deal activity and tighter lending conditions amongst traditional debt providers. As of June 2023, private debt AUM stood at $1.8 billion.

"Compared with long-term averages, the private capital industry has proven to be resilient, notwithstanding more subdued global market and economic conditions," chief executive of the Australian Investment Council Navleen Prasad said.

"While 2021 and 2022 offered more buoyant conditions, the long-term comparison is important given private capital is patient capital. This long-term resilience underscores strong industry fundamentals and Australia's merits as a place for private capital investment."

Prasad said private capital currently contributes round 3% to Australia's GDP, but has the potential to double that.

"The challenge for Australia, in a globally competitive market for patient capital, is to ensure that its regulatory and legislative frameworks remain efficient, effective and flexible enough to enable investment in start-ups and growth businesses," Prasad said.

"It is these businesses that will give Australia a more dynamic and future-proofed economy as well as supporting incumbent industries adapt to a changing world."

Read more: PreqinAustralian Investment CouncilNavleen PrasadAustralian Private Capital Market Yearbook