“It’s taking longer to get fundraisings done. Investors are moving slower, everyone is a bit more cautious.”
Fundraising is the lifeblood of any asset manager. Without new funds, there are no new bullets to buy the next batch of turnarounds/corporate carve-outs/growth equity deals, fewer secondary buyers for already private capital-owned assets and, having fought so hard to tell their story for more than a decade, risk losing relevance with asset allocators and chief investment officers.
Australian private capital’s fundraising slowdown was felt across PE and VC. Within the industry, it looks like an adjustment period.
Big investors needed time to get their heads around the interest rate environment, curbing or slowing down new commitments to what are typically 10-year, closed-ended funds, while some of the offshore asset allocation houses have recalibrated portfolios.
From the outside, it looks like a healthy slowdown.
At $10 billion in new funds raised, last year was still better than five years ago and double a decade ago, albeit well down on the gangbuster 2022 and 2021. The fundraising slowdown also matched a deal slowdown.
The tougher times should remove some of the exuberance and make the industry more resilient in the long term. If it delays one or two new fancy office refurbishments, so be it. It should make PE and VC firms, their investors and the investment banks and law firms that have set up big practices to serve their constant deal turnover, more sustainable.
Chester Moynihan’s Allegro Funds typically raises a new fund every few years. Oscar Colman
While investors will stew on interest rates and other factors, the main thing is returns. Whatever the asset class, investors need to make money.
The private capital industry will tell them that Australia-focused funds raised last decade made 14 per cent (on a net IRR basis) – which makes them No. 2 to Asia (14.5 per cent) and inline with North American funds.
Those returns, and the lower volatility than listed markets, are a strong tailwind, and help explain why more and more offshore PE managers are setting up investment teams in Australia.
Moynihan’s Allegro will be back on the fundraising trail soon enough. It picked up $750 million in the good times in 2021-22 and has invested some of that capital in Scyne Advisory, Slater + Gordon, Camp Australia and Kiwi petrol station owner Gull.
“As a specialist Australia-based fund, we get a lot of inbound interest,” he says.
When Allegro does hit the market, it is sure to consider the emerging high net-worth and family office honeypot that has opened up via the likes of wealth managers Crestone and Morgan Stanley. These firms have started bundling up clients and putting them into PE and VC funds, including for Australian managers.
Mike Zimmerman’s VC firm Main Sequence has a new $400 million-plus fund. Dominic Lorrimer
Mike Zimmerman, a partner at Main Sequence Ventures, saw that first hand. His firm, which invests in deep-tech ventures mostly out of universities, tapped wealth managers, Australian superannuation funds, the government (via the Department of Education) and even Japan’s Daiwa Securities to raise more than $400 million for a new fund in recent months.
He says the big traditional investors are being “more thoughtful” and “backing existing managers and dealing less with new funds”.
Once again, Zimmerman says the main thing is being able to make money. And in his game, that means backing globally relevant companies.
“[Investors] want to see how companies are tracking globally – are they incredible players, can they get follow-on capital from other people, and are they global leaders ultimately in what they’re doing,” he says.
Main Sequence’s portfolio includes sustainable food analytics group Regrow, quantum computing tech business Q-CTRL, and the Gold Coast’s Gilmour Space.
