Private Equity in Australia 2022
Industry Report
Private Equity in Australia
Sound investment: Industry operators have benefited from a record-low interest rate environment.
Concerns regarding inflation have prompted the RBA to increased the cash rate target three times over the four months through August 2022 to limit spending and tame inflation. Rising interest rates are likely to increase the cost of borrowing and subdue business confidence, while simultaneously taming inflation.
EXECUTIVE SUMMARY
Private equity firms manage investments in private companies. They may invest their own capital, raise funds from external investors to invest on their behalf, or do both. Investments can include venture and growth capital for emerging companies, as well as buyouts, which involves purchasing a publicly traded company to take it private. Firms earn revenue from external capital management fees and from any gains made on their own investments.
Firms in the Private Equity industry pool investment funds to purchase companies. Industry firms then attempt to implement managerial and operational changes to improve the company's performance before selling it for a profit.
The industry has benefited from record low interest rates over the past five years, which have allowed for cheap financing and increased buyout activity. However, fluctuations in business confidence, primarily stemming from the COVID-19 pandemic, have limited the willingness of investors to select private equity asset types.
Industry revenue is expected to grow at an annualised 3.3% over the five years through 2022-23, to $585.5 million. The gradual easing of restrictions relating to the COVID-19 pandemic and positive business confidence are anticipated to benefit industry players in the current year. However, lingering unfavourable trading conditions will limit the industry's expansion. Increases to interest rates are expected to subdue the ability of private equity firms to secure funding for buyouts and other ventures.
OUTLOOK 2023 - 2028
Private equity is projected continue growing over the next five years, as investors diversify their portfolios. A forecast rise in the value of managed funds and a strong share market performance will likely benefit industry revenue.
Growth in specific investment areas, such as financial technology (fintech), healthcare, and education and training are forecast to underpin private equity expansion. Despite remaining positive, a projected decline in business confidence in addition to forecast interest rate rises will likely limit the industry's expansion. In particular, interest rate rises are forecast to limit performance fees earned by private equity firms on exiting the industry. Industry revenue is projected to grow at an annualised 1.4% over the five years through 2027-28, to $628.8 million.
Source: IBISWorld | Private Equity in Australia, July 2022
