Australian investors eye private equity surge
Consultants, advisors and investment managers have pointed to the specific appeal of APAC’s private equity sector as new research reveals an increase in investor interest in the asset class.
Among the most supportive were the 73% of Australian institutional investors who expressed a bullish view on prospects for private equity in 2025.
The figure was up from 46% in 2023, and significantly higher than the 67% who said they were bullish on equities, according to the 2025 Natixis Institutional Outlook Survey published on December 4.
Natixis IM
“Smart investors are looking ahead and making tactical allocation shifts now to position defensively and diversify into new opportunities and minimise the risk of inflated equity markets,” Louise Watson, country head for Australia and New Zealand at Natixis Investment Managers, told AsianInvestor.
According to the survey, 41% of investors planned to increase their allocations to private equity, 9% planned to reduce, and 41% responded that they would make no changes.
Of those surveyed, only 8% did not invest in private equity.
More broadly, almost half (47%) of Australian institutions were planning to increase investment in private markets in 2025, while nearly three in four (73%) anticipated that a 60:20:20 equity-bond-alternatives portfolio diversified would outperform the traditional 60:40 stock and bond mix.
Natixis IM surveyed 500 institutional investors collectively managing $28.3 trillion in assets for public and private pensions, insurers, foundations, endowments, and sovereign wealth funds from around the world, including Australia.
APAC OPPORTUNITIES
Andrew Thompson, head of private equity at KPMG Asia Pacific based in Singapore, said that growing investor allocations can be explained by the Asia-Pacific region being particularly well placed to benefit from the diversity of sectors available and favourable deal sizes.
“On the one hand, investors enjoy access to traditional industries like manufacturing and industrials – backbone sectors experiencing renewed interest due to changes in regional supply shifts," he said.
KPMG
"On the other hand, the region’s technology opportunities range from fintech and AI to health tech and advanced manufacturing."
Tim Burroughs, managing editor at Asian Venture Capital Journal, a private markets data and publishing company in Hong Kong, pointed to opportunities for investors in traditional industries in the wake of the pandemic and as concerns over the security of China suppliers grow.
“Asia offers distinct opportunities in traditional industries because of the transformation potential of automation and AI-supported manufacturing processes, but also because of the growing emphasis on supply chain diversification and not being overly reliant on China,” he told AsianInvestor.
“In technology, opportunities exist because of Asia’s large addressable markets that are still relatively fast-growing,” he added, while acknowledging that Asia trailed the US and Europe in some areas of technology.
APAC’s ready availability of mid-sized deals is another lure for global investors, who see opportunities to access high growth opportunities at lower ticket sizes than in North America and Europe.
According to the Asia Pacific Private Equity Barometer 2024, a report published by KPMG in November, deals valued between $15 million and $500 million have consistently accounted for about 33% of investments and reached as high as 45% in the latter half of 2022.
Deals in this range have accounted for 46% of APAC private equity investment value since 2019, according to the firm’s research.
“For investors, this means significant growth potential but requiring smaller amounts of capital to be allocated,” said KPMG’s Thompson.
DEAL DIVERSITY
Thompson highlighted his firm’s research illustrating the diversity of sectors in which private equity deals were available across the region.
Manufacturing, along with industrial and technology, were APAC’s two leading sectors when it comes to potential deals with 1,189 companies for sale across the two sectors in the year through August 2024, according to data from Mergermarket that was collated by KPMG.
More than half of the companies were in Greater China, which featured 1,441 for sale overall and had 428 and 218 companies respectively for sale across the two sectors.
Many of these were too small or otherwise unsuitable for international investors.
In Japan, where deals were typically larger and comprised more mature assets, there were 20 industrial and 33 TMT stocks for sale over the period.
Investors in Japan often benefit from a more supportive legal and regulatory environment, according to the report.
Australia, where investors also benefit from strong legal and regulatory safeguards, was another vital source of deals with 533 companies for sale over the period, second only to China in terms of total available companies.
Tighter funding conditions in recent days, meanwhile, have marked a shift away from the mega-deals which characterised the pandemic period, where PE funds sought a home for record levels of dry powder and sought to capitalise on the economic and financial disruption wrought by the pandemic.
Instead, more investments have been made in technology sectors, notably AI.
The KPMG research showed that the average deal size had declined since the second half of 2022 and continued to drop until the first half of this year, when it had fallen to nearly a five-year low.