Despite Australia’s relatively small population size, its historical connection to the United Kingdom and its well-developed banking, finance and social security pension system make it one of the Pacific Rim’s most mature economic and investment environments. Australia has over time benefited from significant inflows of foreign investment capital, but today it supports considerable investment beyond its own shores. One of the country’s oldest and largest financial institutions, the National Australia Bank, was founded in 1858 and is one of the top 50 financial institutions in the world, with assets in excess of $377 billion. In 2000 “the National,” as it is known, merged its financial service and funds management businesses with MLC of Australia, creating a new division, National Wealth Management, which manages more than $64 billion in pensions, trusts and mutual funds.
By the mid 1980s the National adopted a multi-manager approach for all asset classes. It had separate asset managers in each class and had adopted an outside investment strategy. Since that time the National has entered all classes of investment. In 1996 the National expanded into private equity, taking a fund of funds approach.
Charl Pienaar, investment manager of Global Private Equity, was chosen to build the private equity investment program of the National in 1996. He says that since the early 1980s Australia has had a compulsorily defined pension plan system: Employers were required to contribute 3% of an employee’s compensation (today that figure is 9%) into pension plans, a significant portion of which now resides with the National’s Wealth Management group. Pienaar says Global Private Equity adopted a global scope of investment from its outset and faces no regulation or limits to its allocations by investment class or geography, unlike Canada. To date the group has $1.1 billion committed to private equities, equally divided between Europe and the United States, and between venture capital and buyout funds.
Having started in 1996, Global Private Equity can be viewed as a model for newer European private equity investment interests. It adopted a hybrid strategy of actively investigating direct investments into venture capital and buyout funds as well as using funds of funds for specific portfolio needs. Currently the group participates in 15 general partnerships and limited partnerships, including Accel Partners; Adams Street Partners; Apax Partners; Bain Capital; BC Partners; Catalyst (Australia); Clayton Dubilier & Rice; CVC Capital Partners (Europe); Heritage Partners; Horsley Bridge Partners; Nordic Capital; and Welsh Carson Andersen & Stowe.
“Our challenge as an offshore investor is to understand the structural and generational issues currently taking place, particularly in the buyout market [in the United States],” says Pienaar. “There are new leaders coming to bear and the industry is experiencing significant change. Strategies that were fruitful in the past are not so [productive] now.” Like many experienced limited partners, the Wealth Management group is not overly concerned with the current downturn because it is properly diversified, Pienaar says, adding that the group is an active investor.
Pienarr says he has noticed a change of attitude by other Australian institutions over the last three to four years, notably a broadened interest in private equity that until recently was biased toward investments in Australia. One of the factors in this heightened awareness of the U.S. private equity market has been the presence in Australia of leading U.S. fund advisors and gatekeepers, including Adams Street and HarbourVest and U.S. fund sponsors such as Bain, which have invested in educating Australian institutions about investing into the United States.
It is clear that with its eight years of investment experience the Global Private Equity group has reached a level of sophistication that will propel it into successful participation in long-term private equity investing.