Will private capital be one of the biggest drivers of investment in 2024?
“Never before in history has there been so much capital in private hands, ready to deploy,” says a banking and finance partner, as Australian private capital assets under management reach record highs.
As recently reported by Lawyers Weekly’s sister brand, Investor Daily, Australia-focused private capital assets under management (AUM) reached a record $118 billion in September last year, up 21 per cent from nine months earlier.
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Despite global macroeconomic headwinds over the period, Australia-focused private equity and venture capital funds were both reported to have raised record amounts during the 2022 financial year.
“In a globally competitive market, Australia offers a relatively stable regulatory and legislative environment as well as access to high-quality talent pools and a gateway to Asian markets,” said Australian Investment Council chief executive Navleen Prasad.
One recent example of a private capital investment in Australia is TPG’s acquisition of InvoCare, in which global law firm Baker McKenzie advised the lenders on the $895 million unitranche financing.
Speaking at the time of the deal announcement, Bakers banking and finance partner Alastair Gourlay commented: “Despite M&A activity continuing to be subdued, this financing is testament to the continued strong appetite in the Australian market to provide leverage finance to top-tier sponsors acquiring market-leading businesses.
“The financing was oversubscribed and was funded by a diverse set of credit funds and financial institutions with a presence in the Asia-Pacific region.”
Bakers is, of course, not the only BigLaw firm to be advising on such transactions at present, with multiple BigLaw firms having recently closed on acquisitions by private capital groups.
In conversation with Lawyers Weekly, Mr Gourlay predicted that private capital will continue to grow in 2024 and become one of the main drivers for investment, both in Australia and around the world.
“Never before in history has there been so much capital in private hands, ready to deploy,” he observed.
“If one considers the superannuation funds, the pool of capital in this sector alone is immense and will have to flow somewhere.”
Mr Gourlay explained that there are several factors driving the trend towards private capital (made up of private equity, private credit, hedge funds, super funds, and venture capital) at this juncture.
“Focusing on private credit, being the area in which I specialise, investors are increasing their exposure to this asset class as it is currently outperforming the public markets and provides them with consistent and ‘lower risk’ revenue than investing in equity,” he said.
“For borrowers, private credit is an increasingly important source of liquidity for various reasons, including the decline during the past few years of bank-led financings and the current challenging global financing environment.”
Bakers continues to see a move from public to private capital, Mr Gourlay noted, both locally and globally.
“It is an exciting time for private credit in Australia, with an increasing number of financings being provided by private credit funds,” he said.
Mr Gourlay added that this emerging trend will also present certain challenges to law firms advising clients in this space.
“An important thing for law firms to understand is that private credit funds operate very differently to banks. For example, private credit funds are typically leaner in terms of in-house teams than banks and will rely more heavily on their external counsel,” he said.