Australian private equity returns have been better than the stock market over the past decade and over the last five- and three-year periods, says a survey by Cambridge Associates LLC.

The Australian private equity and venture capital Index in the 10 years to June 30, 2011, had a net annual return of 7.8 per cent, the survey says. The S&P/ASX 300 Index had a 7.2 per cent annual gain during the same period.

In the five years to June 30 the private equity and venture capital net annual return was 4.2 per cent. In the three years to June the net annual return was 2.4 per cent.

The S&P/ASX 300 Index over five years added 2.4 per cent a year. Over three years it increased 0.3 per cent a year.

“For those superannuation funds that have published their returns it can be seen that their private equity investments have outperformed their public market investments,” says Katherine Woodthorpe, chief executive of the Australian Private Equity & Venture Capital Association.

Cambridge Associates surveyed 52 private equity and 18 venture capital firms including fully-liquidated partnerships.

In Australia private equity deals of up to $100 million typically have leverage of less than a third of the purchase price of the asset or none at all.

Private equity firms in Australia may borrow as much as half the purchase price of an asset that costs more than $250 million.

2 comments on “Private equity tops the stock market”
  1. The general finding from the numerous studies of the performance of private equity find that their absolute returns are greater than that on listed shares. Of course this comparison is like comparing oranges as apples as private equity returns are heavily geared, more risky by their nature and highly illiquid. Once account is taken of these differences in order to compare like with like, priavte equity has proved for most to be a very poor investment. If one looks at the thin margin of private equity over listed equity reported in the Cambridge study, this suggests the same applies in Australia as it will prove far than sufficient to account for the higher “risk” of private equity. Does this suggest that private equity is necessarily a bad investment? NO, but it does demonstrate as one would expect that all of the spoils end up in the pockets of the purveyors of the service. Of course, they do have to ensure that there are some winners or otherwise they would not have anyone to whom to charge their exorbitant fees..

  2. The general finding from the numerous studies of the performance of private equity find that their absolute returns are greater than that on listed shares. Of course this comparison is like comparing oranges as apples as private equity returns are heavily geared, more risky by their nature and highly illiquid. Once account is taken of these differences in order to compare like with like, priavte equity has proved for most to be a very poor investment. If one looks at the thin margin of private equity over listed equity reported in the Cambridge study, this suggests the same applies in Australia as it will prove far than sufficient to account for the higher “risk” of private equity. Does this suggest that private equity is necessarily a bad investment? NO, but it does demonstrate as one would expect that all of the spoils end up in the pockets of the purveyors of the service. Of course, they do have to ensure that there are some winners or otherwise they would not have anyone to whom to charge their exorbitant fees..

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