Unfortunately, super funds sat on the tech venture bandwagon of the late 1990s. “Get them to explain why they invested then: where was Australia’s 10-year track record in venture to justify their investments,” Carnegie says. “They invested because it was hot, it was about recent performance.” They invested with an expectation – not solid evidence – that domestic venture would outperform. It didn’t, and now they won’t go near the asset class until performance figures improve. Woodthorpe says the industry is in a classic chicken-and-egg syndrome: venture managers can’t perform without capital, and investors are unwilling to provide it. In the past decade, Industry Funds Management (IFM) has steadily reduced the allocation to venture capital in its private equity fund-of-funds. Judith Smith, who oversees the manager’s private equity programs, says the unimpressive returns haven’t been restricted to dotcom vintages and make it difficult to be optimistic about the future of the sector. “To put the experience of the last 10 years on a bout of unfortunate timing is not a basis for this modest experience,” Smith says. “A number of funds have been raised which have been disappointing in their execution – in their ability to build businesses out of small starting positions.” A decade ago, IFM invested about 20 per cent of its private equity FoFs in venture. It now invests less than half of this in current programs. In principle, domestic venture capital is worthy of institutional support: backing Australian innovation, helping to strengthen and diversify the nation’s economy and profit at the same time has lots of appeal, Smith says.

But the reality has not been so compelling. “If you ask people: ‘Do you want to invest in small, innovative companies?’ The answer is yes. But if you ask them if they want to do this by investing in venture, they hesitate. There’s a gap.” Smith questions whether Australia’s current innovation sector is deep enough to warrant ongoing institutional investment. “Are there enough good deals to populate the number of funds and give you the returns needed for the risks they involve?” she asks. booms and busts Institutions’ retraction from venture is understandable, says Geoff Brooke, co-founder and managing partner at GBS Ventures, particularly as super funds have run rulers across their entire portfolios in the wake of the financial crisis. “Large institutions have had a long, hard look at what they invest in. When the GFC hit, some of them stopped investing in the biggest and most stable companies, let alone venture,” Brooke says. “There are members of Australian super funds that would love to invest in domestic venture because they get it. They get the job creation angle, and that returns come from taxpayer-funded investments,” Brooke says. But the investment case is not practical, due to the risks involved and recent poor performance. In recent years, super funds have consolidated their manager line-ups, invested more heavily in passive equity strategies and focused on lowering investment costs ahead of the introduction of MySuper. Risk appetite has returned, but in a measured way, and Brooke does not expect funds to move on from active equity mandates to sign venture capital cheques any time soon.

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