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5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2007-08  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 12/02/2009   
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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 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.

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 2008, $17.1b was committed to direct VC&LSPE investment vehicles, $3.6b of which was committed via fund of funds investment vehicles. At end of June 2008, $6.5b of commitments to direct VC&LSPE investment vehicles were unused, $1.6b of which was committed via fund of funds investment vehicles (see table 1).

The following graph presents drawdown investment for VC&LSPE investors by type of investor. The largest source of funds in terms of drawdowns for VC&LSPE vehicles was provided by domestic pension funds, with 53% of total drawdowns (down slightly from 54% at June 2007).

DRAWDOWN FROM INVESTORS BY INVESTOR TYPE, Percentage of total investment in VC&LSPE vehicles - 2007-08
Graph: DRAWDOWN FROM INVESTORS BY INVESTOR TYPE, Percentage of total investment in VC&LSPE vehicles—2007–08



VC&LSPE MANAGERS AND INVESTMENT VEHICLES

The survey identified 183 active VC&LSPE managers who were managing 286 VC&LSPE investment vehicles.

VC&LSPE managers received income in the form of management fees ($198m). In 2007-08, fund managers spent on average 3.9 days a month per investee company. This compares with 3.6 days in 2006-07 and 2005-06.

VC&LSPE investment vehicles had net assets of $10.3b at June 2008 compared with $9.5b at June 2007 and $6.9b at June 2006.

Most VC&LSPE investment vehicles were either trusts (funds) or corporations. Of the 286 vehicles operating in 2007-08, 105 were companies, 18 of which were listed with the Australian Stock Exchange.

At the end of June 2008, 118 of the 286 VC&LSPE investment vehicles were participating in a government program, a slight decrease on the number of participants in 2007. Most of the participating investment vehicles were with the Federal government's Pooled Development Fund (PDF) program.

The value of total assets held by VC&LSPE investment vehicles was widely dispersed, from 138 investment vehicles having less than $10m in assets, to 39 with more than $80m in total assets.

NUMBER OF INVESTMENT VEHICLES, By value of assets held
Graph: NUMBER OF INVESTMENT VEHICLES, By value of assets held


Table 2 shows the financial flows between VC&LSPE investment vehicles and investee companies over the survey period. New and follow-on investments by VC&LSPE investment vehicles fell by $342m (13%) in 2007-08 to $2,445m.

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 $843m in 2007-08 (made up of $1,319m of sale proceeds less $476m profit over the life of the investments). This compares to a reduction in investment value of $787m in 2006-07 (made up of $1,552m of sales proceeds less $765m profit over the life of the investments). The value of vehicles that have dropped out of the Australian VC&LSPE industry ($162m in 2007-08) was lower than the level recorded in the previous year.

ADDITIONS AND EXITS TO INVESTMENTS IN INVESTEE COMPANIES
Graph: ADDITIONS AND EXITS TO INVESTMENTS IN INVESTEE COMPANIES


Investment vehicles had total expenditure of $498m during 2007-08, of which the largest contributor was management fees ($198m, compared to $191m during 2006-07). Total income increased to $428m, driven mainly by an increase in Interest received ($169m in 2007-08 compared to $145m in 2006-07).

INCOME AND EXPENDITURE OF INVESTMENT VEHICLES
Graph: 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 163 vehicles using this method in 2007-08, followed by book value/cost valuation methods (56) and directors' valuation (40).

VALUATION METHODS USED, By investment vehicles
Graph: VALUATION METHODS USED, By investment vehicles



INVESTEE COMPANIES

Of the $7,927m that had been invested in the 1,135 investee companies (deals) at June 2008, $1,910m was invested in new projects during the 2007-08 financial year (down by $451m or 19% on 2006-07), with additional investments in existing projects of $535m (up $89m or 20%). See table 2 for more details.

The following graph indicates that in 2007-08, the largest concentration of deals made by VC&LSPE vehicles were with investee companies established for between two and four years (41%). Investee companies in the five to 10 year category accounted for 28% of deals in 2007-08.

NUMBER OF DEALS, By age of investee company
Graph: NUMBER OF DEALS, By age of investee company


In terms of the current stage of investment, total investments in the leveraged buyout/management buyout/management buyin (LBO/MBO/MBI) stage attracted the largest share, with $2,831m or 36% of total value as at the end of June 2008.

See paragraph 12 of the Explanatory Notes for a definition of the VC&LSPE stages referred to in the following graph.

VALUE OF INVESTMENT, By investee stage - 2007-08
Graph: VALUE OF INVESTMENT, By investee stage—2007–08


The following 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 four survey years.

VALUE OF INVESTMENT, By number of investees
Graph: VALUE OF INVESTMENT, By number of investees


Most of the value of VC&LSPE investment was in investee companies with head offices in NSW and Victoria (with 36% and 23% respectively at June 2008). The current value of investee companies with head offices in NSW increased by $529m compared to 2006-07, and Victoria rose by $221m. The current value of investments by Australian vehicles in offshore investee companies remained significant, increasing (up $201m) to $1,427m in 2007-08.

PERCENTAGE OF INVESTMENT VALUE, By location of investee
Graph: PERCENTAGE OF INVESTMENT VALUE, By location of investee


VC&LSPE vehicles invested in a wide range of industries. Of the total value of $7,927m invested in 2007-08, Manufacturing and Utilities became the predominant industry of investment, with investments at the end of the year of $1,990m (25%). The current proportion of investments increased in the Finance and Property industries (to 25% of total investments), Health and Services industries (to 16% of total investments), Construction industries (to 2% of total investments) and Transport and Communications industries (to 9% of total investments). All other industries recorded decreases in their proportion of total investment.

PERCENTAGE OF TOTAL INVESTMENT, By industry of investee
Graph: PERCENTAGE OF TOTAL INVESTMENT, By industry 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 $2,676m or 34% of total investment for 2007-08. Retail, Services and Real Estate with $2,514m (32%) and Biotech, Pharmaceuticals and Health activities with $1,235m (16%) also attracted large shares of the total investments as at the end of June 2008.

PERCENTAGE OF VALUE OF INVESTMENT, By activity of investee
Graph: PERCENTAGE OF VALUE OF INVESTMENT, By activity of investee



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