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Capitalizing On The Diverse Economy

|Apr 7|magazine10 min read

The Australian Private Equity and Venture Capital Association Ltd (AVCAL) conference was held last month where approximately 200 delegates representing 15 countries and more than $4 trillion in investment capital were present. Mr Nick Sherry, Assistant Treasurer and Minister for Competition Policy and Consumer Affairs spoke at the conference on the importance of private equity and venture capital financing as part of a diverse investment landscape in Australia.

Minister Sherry said that private equity and venture capital have greater roles to play in the diverse Australian economy especially after the recent economic downturn that the world witnessed. “The Government recognises the importance of the Australian private equity market, particularly as the world recovers from the recent economic turmoil. A 2006 PricewaterhouseCoopers and AVCAL survey highlighted the contribution that private equity investors can make to efficient capital markets. The survey found that private equity investment led to 72 per cent of investee companies developing new and innovative products, compared with only 27 per cent of firms pre-takeover. AVCAL estimate that private equity funds accounted for over $22 billion in funds under management as of end-June 2009 and that these funds were invested in 326 companies across a wide range of sectors. Local investor commitments to private equity have risen over threefold since 2000”, he said.
 
A study conducted by AVCAL states that Australian PE funds have historically performed on par with American and European funds. Some AVCAL sources say that there is also an estimated $ AU 6.5 billion worth of unused commitments available for investment over the next two or three years. Minister Sherry also emphasized on the importance of venture capital to the expanding Australian economy. “Australia has cut a role as a leading Asia Pacific venture capital market and that is also strongly supported by the Government.” (In Australia, venture capital has helped create and grow many innovative firms including Austral- world leaders in fast ferries manufacturing, Wizard Home Loans and Seek- Internet job-advertising service.) According to AVCAL, the Australian venture capital industry holds over $ AU 2 billion worth of funds in management- a number that is modest in the global sense but vital to the Australian economy nevertheless. Minister Sherry mentioned that Australia not only survived the global economic downturn but rode it better than many other economies. “Australia has navigated through the global economic crisis better than most nations in the world. It is interesting to reflect just how much has changed over the past 12 months for the global and Australian economies.

This time last year, the Government had just announced its $42 billion Nation Building Economic Stimulus Plan, providing further critical public support to both households and businesses at a time when the outlook for the international economy was at its lowest.
Both arms of macroeconomic policy were in full swing, with the Reserve Bank cutting the cash rate by a total of 425 basis points from September 2008 to April 2009, providing immediate financial relief to households and businesses.”
 
The National Accounts reported that the December 2009 quarter showed a strongly growing economy and even a better performing one than other, more advanced economies. Australian GDP grew by 0.9 percent in the December quarter to be 2.7 percent higher through the year. “This is a remarkable achievement in a devastating year for the global economy. During the worst global financial and economic crisis in since the 1930s, as most advanced economies contracted, the Australian economy grew - quarter, after quarter, after quarter – four quarters out of four,” said Minister Sherry.
 
Recent economic data highlighted the remarkable resilience of the Australian labor market as well. The unemployment rate as of January was 5.3 percent, almost at the same level as the beginning of 2009. More than 180,000 jobs are available, as of now, in Australia while the rest of the world sees retrenchments and job cuts.And that indicates the opportunities that the Australian economy presents for PE and VC investors. The Government thinks likewise and Minister Sherry concluded his speech by hinting a joining of forces to make Australia a better landscape for PE and VC investments.