SUMMARY OF FINDINGS


INTRODUCTION

Investors in Venture Capital and Later Stage Private Equity (VC&LSPE) 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. 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. There are two types of vehicles: those that generally invest directly in investee companies, and those that pool funds and generally invest through direct investment vehicles. The latter are called fund of funds.

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.

The investment decisions of the vehicles are made by a VC&LSPE manager, who is generally a skilled business person and financial analyst. The VC&LSPE manager provides assistance and advice to the investee companies.

The usual relationship between the investors, managers, vehicles and investee companies is shown below. While this represents the usual relationship, variations can occur e.g. a fund of funds may co-invest with another fund manager.

OVERVIEW

The value of funds committed to VC&LSPE investment vehicles decreased during 2008-09. As at 30 June 2009, investors had $17.4b committed to investment vehicles, a decrease of 1% on the revised $17.6b committed as at 30 June 2008. Most of the committed funds were sourced domestically, with 91% of commitments from Australian investors (up slightly on June 2008). The value of funds committed by non residents decreased $351m (19%), while the total value of funds committed remained flat.

Resident pension funds continued to increase their contribution to total commitments, with $9.8b of committed capital (56% of total funds committed). All investors had $11.7b of committed funds drawn down at 30 June 2009, an increase of 7% on the previous year end ($10.9b at June 2008).

As at 30 June 2009, $5.7b of committed funds were yet to be called on, down 15% on the revised $6.7b of unused (undrawn) commitments as at June 2008. The $5.7b of undrawn commitments can be classified by preferred stage of investment, with only $0.8b undrawn by funds which prefer to invest at the early stage.

The value of investments by VC&LSPE investment vehicles ($7.8b in 1,089 investee companies) decreased 6% on the $8.3b reported at the end of June 2008. Investments in these 1,089 investee companies were reported by 275 vehicles.

During 2008-09, the net value of all exits through trade sales, Initial Public Offerings (IPOs) and buybacks amounted to $682m.

VC&LSPE managers only selected 2% of the potential investments they reviewed. The 180 VC&LSPE managers reviewed 5, 670 potential new investments during 2008-09 and conducted further analysis on 469 of those, with 126 being sponsored for VC&LSPE.

The following diagram summarises key findings for VC&LSPE at June 2009.