SUMMARY OF FINDINGS


INTRODUCTION

Investors in Venture Capital and Later Stage Private Equity (VC&LSPE) are generally sophisticated individual investors or institutional investors 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 VC&LSPE investment vehicles: direct VC&LSPE investment vehicles which generally place investments directly in investee companies; and vehicles that pool funds and generally place investments with direct VC&LSPE investment vehicles. These are called fund of funds.

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 resident VC&LSPE investment vehicles fell during 2010-11. As at 30 June 2011, investors had $15.9b committed to investment vehicles, a fall of 8% on the revised $17.3b committed as at 30 June 2010. Most of the committed funds were sourced domestically, with 91% of commitments from Australian investors (residents) down from 93% as at 30 June 2010. The value of funds committed by non-residents rose $0.2b (16%) (see table 1).

Resident pension funds contributed $9.3b to total committed capital (59% of total funds committed). All investors had $12.2b of committed funds drawn down as at 30 June 2011, which was the same as the $12.2b of committed funds drawn down as at 30 June 2010.

As at 30 June 2011, $3.6b of committed funds were yet to be called on, down 28% on the undrawn commitments as at 30 June 2010. The $3.6b of undrawn commitments can be classified by preferred stage of investment, with only $0.7b undrawn by funds which prefer to invest at the earlier stage (see tables 1 and 4).

The value of investments by VC&LSPE investment vehicles ($8.7b in 875 investee companies) fell 2% on the $8.9b reported as at 30 June 2010 (see table 2). Investments in these 875 investee companies were reported by 257 vehicles.

During 2010-11, the net value of all exits through trade sales, Initial Public Offers (IPOs) and buybacks amounted to $1,433m, up 109% on 2009-10 (see table 2).

VC&LSPE managers only selected 2% of the potential investments they reviewed. The 156 VC&LSPE managers reviewed 5,532 potential new investments during 2010-11 and conducted further analysis on 749 of those, with 90 being sponsored for VC&LSPE.

The following diagram summarises key findings for VC&LSPE as at 30 June 2011.