As its name suggests, private equity involves investing in private companies (i.e. those not listed on public equity markets like the Australian Stock Exchange). Private equity includes a range of investment strategies (including venture capital, leveraged buy-outs, and growth capital), all of which share three common characteristics:
 Investing in private companies allows private equity managers to take a medium-term view on business performance. Investee companies are not subject to continuous disclosure or half-year reporting requirements, so management teams can make decisions that are in the long-term interests of the company, without fear of short-term share price fluctuations
Private equity investors take meaningful equity stakes in the companies in which they invest, exercising significant influence over the strategy and operations of the business, and taking board seats to oversee and control the company's performance
Private equity investors invest with a medium-term exit horizon, planning to hold the business for three to five years before selling the business at a profit
The capital that is provided to 'investee' companies can be employed in a number of ways, for example:
to facilitate expansion
to assist in development of new products and/or markets
to fund changes in ownership and/or management
to fund mergers and/or acquisitions
Returns to investors are generated by growing the value of each investment over a multi-year time frame (typically three – four years), before exiting the investment (typically via IPO or sale to a third party). Historically, returns generated by Australian private equity managers have been superior to both the S&P/ASX 300 Index and the S&P Small Ordinaries Index over one, three, five and 10 year periods.
Private equity firms aggregate capital from a number of sources to invest into a portfolio of different companies that they actively manage.
Historically, private equity investors have largely been institutional investors (such as superannuation funds) that have sought exposure to private equity for its superior returns and portfolio diversification benefits. Global institutional allocations to alternative assets (of which private equity is a major part) are expected to increase to 20% of overall portfolios by 2012. Recently, an increasing number of individual investors are also looking to invest in private equity
However, private equity is also becoming an increasingly important source of returns and diversification for individual investors. Globally, high net worth investors are increasing their allocations to alternatives (including private equity) from six per cent to eight per cent of their portfolios. In Australia, this trend is being reinforced by the increasing prevalence of SMSFs, where investors with relatively large superannuation balances are looking for opportunities to diversify outside conventional equities, property, fixed income and cash allocations.
Typically, private equity investors invest through a private equity fund, which takes responsibility for making and managing investments in private businesses on their behalf. BSPE's EC2010 Fund is one of few private equity funds in Australia that is open to both institutional investors as well as individuals. The EC2010 Fund is currently accepting applications from investors.
For further details, please contact Investor Services:
Private equity is part of the alternative investment category.
'Expansion Capital' is a form of private equity investment that provides businesses with additional capital to fund growth in return for an equity position in the company. It differs from other forms of private equity, such as venture capital (which invests in start-up businesses) or LBOs (which use high levels of debt to fund buy-outs of large, established businesses and drive returns).
If your business is growing rapidly but requires additional capital (for example, for capital expenditure, to fund acquisitions or for working capital), then it may benefit from partnering with BSPE. |
