Private-equity returns have outperformed investments in the stock market over the past decade, according to Cambridge Associates’ Australia Private Equity and Venture Capital Index.
In the 10 years to December 31, 2011, Australian private-equity net returns were 7.5 per cent per annum. The S&P/ASX 300 Accumulation Index rose 6.1 per cent per year during the same period.
Katherine Woodthorpe, chief executive of the Australian Private Equity and Venture Capital Association, says capital investment and management expertise offered by private-equity firms have helped to deliver returns higher than those of public markets. Private equity can also pick the right time to sell an asset, she says. “It is patient capital.”
The term private equity includes buyout firms, which use a mixture of debt and equity to acquire companies, as well as venture-capital partnerships that invest in budding businesses.
Woodthorpe says Australian buyouts have used less debt in their deals than those overseas. On average a leveraged buyout in Australia comprises 50 per cent debt and 50 per cent equity, she says. In the US and Europe as much as 80 per cent of a buyout is financed with debt.
In the 12 months to December 31, 2011, Australian private equity’s return was 7.9 per cent. The S&P/ASX 300 Accumulation Index fell 11 per cent during the same period.