Venture capital investment outstrips share market: Report

Private equity and venture capital investment in Australian businesses provides better returns than shares over the long term, according to a new report.

The index, by the Australian Private Equity & Venture Capital Association and investment advisors Cambridge Associates, shows private equity provided returns of 6.88% and 2.83% over three and five years, while the S&P/ASX 300 share market index produced returns of 2.8% and -1.81% respectively.

In the year to December 31, however, shares outperformed private equity returns, with the S&P/ASX 300 jumping by 19.74%, while private equity gained 5.78%.

AVCAL chief executive Katherine Woodthorpe tells StartupSmart that private equity and business made good partners because both were focused on long term outcomes.

“They can implement strategies which may be in the short term detrimental to the bottom line but better overall,” she says.

Woodthorpe says private equity investment activity ranged from $500,000 capital injections to multi-billion dollar takeovers, with the bulk of activity involving companies worth between $20 million to $300 million.

“It’s about growing companies that have an opportunity,” she says of private equity’s interest in businesses, citing cosmetics company Aesop, which in 2010 sold a 40% stake to Harbert Private Equity Fund, and Boost Juice, which sold a majority stake to US-based private equity firm The Riverside Company, also in 2010.

She says private equity was good at improving the operational performance of a company and would help business owners with strategy because they “have skin in the game.”

Woodthorpe adds that many private equity and venture capital returns flowed back to Australia’s “mums and dads” as Australia’s superannuation and pension funds were among the country’s biggest investors.