5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2005-06

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 16/02/2007

Page tools: Print Page Print All
Main Features Analysis of Results Summary of Findings Time Series Data About this Release	ANALYSIS OF RESULTS INVESTORS VC&LSPE investors are generally sophisticated individual investors or organisations such as pension (superannuation) funds. Investors invest in VC&LSPE vehicles which are mainly organised in the form of either trust funds or corporations. VC&LSPE trust funds obtain investment commitments from investors, which are drawn down over time. They must return capital plus profit (minus loss) as investments are realised. On the other hand, VC&LSPE vehicles organised as corporations are able to choose to make distributions to investors (including parent corporations) or to retain capital for further investment. Investors in corporations may liquidate their investment by sale on the secondary market. Drawn down funding from investors in corporations can be estimated from paid up capital and borrowings, but the ability of corporations to reinvest retained earnings and the tradeability of investor equity in corporations makes analysis of investment by type of investor difficult. VC&LSPE investment vehicles include both direct VC&LSPE investment vehicles which place investments directly in investee companies, and fund of funds investment vehicles which mainly place investments with direct VC&LSPE investment vehicles. At end of June 2006, $10.9b was committed to direct VC&LSPE investment vehicles, $1.4b of which was committed via fund of funds investment vehicles. At end of June 2006, $4.1b of commitments to direct VC&LSPE investment vehicles were unused, $0.7b of which was committed via fund of funds investment vehicles (see table 1 for more details). The following graph analyses drawdown investment for VC&LSPE investors by type of investor. The largest source of funds in terms of drawdowns for VC&LSPE vehicles was domestic pension funds, with 46% of total drawdowns (down from 47% at June 2005). DRAWDOWN FROM INVESTORS BY INVESTOR TYPE, Percentage of total investment in VC&LSPE vehicles, JUNE 2006 VC&LSPE MANAGERS AND INVESTMENT VEHICLES The VC&LSPE manager is generally a skilled business person and financial analyst. The gathering of commitments from investors takes a considerable amount of time, as does the process of evaluating potential investees. The survey identified 157 active VC&LSPE managers who were managing 229 VC&LSPE investment vehicles. This compares with 140 active managers managing 210 vehicles in 2004-05. VC&LSPE managers spent 186,000 hours with investee companies in 2005-06 and received income in the form of management fees ($143m). In 2005-06, fund managers spent on average 3.6 days a month per investee company. This compares with 2.5 days in 2004-05 and 3.0 days in 2003-04. The average days spent with investee companies with Retail, Services, and Real estate related activities rose from 2.5 days in 2004-05 to 4.1 days in 2005-06. VC&LSPE investment vehicles had net assets of $5.8b at June 2006 compared with $4.2b at June 2005 and $3.7b at June 2004. Most VC&LSPE investment vehicles were either trusts (funds) or corporations. Of the 229 vehicles operating in 2005-06, 112 were companies, and of these, 92 were not listed with the Australian Stock Exchange. At the end of June 2006, 120 of the 229 VC&LSPE investment vehicles were participating in a government program, an increase on the number of participants in 2005 and 2004. Most of the participating investment vehicles were with the Federal government's Pooled Development Fund (PDF) program. NUMBER OF INVESTMENT VEHICLES, By value of assets held The value of total assets held by VC&LSPE investment vehicles was widely dispersed, from 118 investment vehicles having less than $10m in assets, to 18 with more than $80m in total assets (see the preceding graph). Table 2 shows the financial flows of VC&LSPE investment vehicles over the survey period. New and follow-on investments by VC&LSPE investment vehicles rose by $378m (37%) in 2005-06 to $1,400m. Most return on investment to investees is through exits from investments. The decrease in the investment value due to exits through trade sales, IPOs and buybacks was $721m in 2005-06 (made up of $998m of sale proceeds less $277m profit over the life of the investments). This compares to a fall in investment value of $572m in 2004-05 (made up of $1,043m of sales proceeds less $471m profit over the life of the investments). The value of vehicles that have dropped out of the Australian VC&LSPE industry ($357m in 2005-06) was higher than the level recorded in the previous year. ADDITIONS AND EXITS TO INVESTMENTS IN INVESTEE COMPANIES Investment vehicles had total expenditure of $306m during 2005-06, just under half of which was for management fees ($143m, compared to $123m during 2004-05). Total income increased to $283m, with the increase driven mainly by a large increase in interest receipts ($134m in 2005-06 compared to $88m in 2004-05). INCOME AND EXPENDITURE OF INVESTMENT VEHICLES VC&LSPE funds used various valuation methods (refer to paragraph 14 of the Explanatory Notes). The AVCAL method was most frequently used, with 127 vehicles using this method in 2005-06, followed by book value/cost valuation methods (35) and directors' valuation (34). VALUATION METHODS USED, By investment vehicles INVESTEE COMPANIES Of the $4,316m that had been invested in the 902 investee companies (deals) at June 2006, $1,053m was invested in new projects during the 2005-06 financial year (up by $214m or 26% on 2004-05), with additional investments in existing projects of $347m (up $164m or 90%). See table 2 for more details. NUMBER OF DEALS, By age of investee company The preceding graph indicates that in 2005-06, the majority of deals made by VC&LSPE vehicles were with investee companies established for between two and four years (49%), which is in similar proportions to that recorded in previous years. Investee companies in the five to 10 year category accounted for 31% of deals in 2005-06. VALUE OF INVESTMENT, By investee stage, 2005-06 See paragraph 12 of the Explanatory Notes for a definition of the VC&LSPE stages referred to in the above graph. In terms of the current stage of investment, total investments in the LBO/MBO/MBI stage attracted the largest share, with $1,325m or 31% of total value as at the end of June 2006. PERCENTAGE OF INVESTEE COMPANY OWNED, By venture capital and later stage private equity vehicle VC&LSPE arrangements typically do not involve a level of controlling equity by a single VC&LSPE vehicle in investee companies, with most deals having less than 40% ownership by any one investment vehicle, as the above graph illustrates. However, it is worth noting that more than one fund manager may invest in the same investee company or a fund manager may manage more than one vehicle investing in an investee company. VALUE OF INVESTMENT, By number of investees The above graph shows the distribution of the value of investment placed by VC&LSPE managers in individual investee companies. Most deals attracted less than $10m from any one investment vehicle, but the proportion receiving greater than $20m has been steadily increasing over the past three survey years. The number of investees receiving less than $1m in 2005-06 decreased to around the level recorded for 2002-03. PERCENTAGE OF INVESTMENT VALUE, By location of investee The above graph indicates that most of the value of VC&LSPE investment in investee companies continued to be invested in investee companies with head offices in NSW and Victoria (with 29% and 22% respectively at June 2006). The current value of investee companies with head offices in NSW increased by $60m compared to 2004-05, while Victoria fell (down $44m) for the third consecutive year. The current value of investments by Australian vehicles in investee companies domiciled overseas remained significant, increasing (up $257m) to $658m in 2005-06. PERCENTAGE OF TOTAL INVESTMENT, By industry of investee VC&LSPE vehicles invested in a wide range of industries. Of the total value of $4,316m invested in 2005-06, Manufacturing and Utilities continued to be the predominant industry of investment, with investments at the end of the year of $1,039m (24% of the total). The current value of investments expressed as a proportion of total investments increased in the Finance and Property industries (up $274m to 18% of total investments), and Agriculture and Mining industries (up $354m to 16% of total investments). All other industries recorded decreases in their percentage of total investment. PERCENTAGE OF VALUE OF INVESTMENT, By activity of investee When analysed by activity, as defined by the Standard and Poors Activity Classification, the Manufacturing and Transport related activities attracted the largest share of investment, with $1,579m or 37% of total investment for 2005-06. Retail, Services and Real Estate with $1,266m (29%) and IT, Media, Electronics and Communications with $681m (16%) also attracted large shares of the total investments as at the end of June 2006. Document Selection These documents will be presented in a new window.