If you’re looking to raise an Australian venture capital fund, Hostplus should be your first stop.
The A$45 billion ($31 billion; €28 billion) superannuation fund has been piling into the asset class. It had A$538 million of venture capital assets under management as of March, compared with A$369 million at 30 June last year, head of private equity Neil Stanford told Private Equity International, an affiliate publication of Venture Capital Journal.
As the self-proclaimed largest institutional investor in domestic venture capital, Hostplus had committed A$850 million to local managers as of June 2018, a figure that was expected to surpass A$1 billion by year-end, according to its latest annual report.
According to PEI data, its local venture capital portfolio includes Blackbird Ventures 2018, a A$75 million 2017-vintage vehicle raised by Blackbird Ventures; and Carnegie Innovation Fund No.2, an A$80 million 2017-vintage vehicle raised by MH Carnegie & Co.
Click here for a related story on Boston-based Safar Partners, which is backed by Hostplus. “New firm Safar targets early tech from Harvard, MIT and UR.”
Global venture capital accounted for 16.9 percent of Hostplus’s A$2.2 billion private equity portfolio as of June last year, behind buyouts at 33.8 percent and co-investments at 20.8 percent. Private equity accounted for 6.4 percent of total investments, slightly above the 4 percent average for superannuation funds.
Its push into VC comes at a time when Australian dealmaking appears to have stalled. Firms have completed just 20 private equity deals in Australia this year, well below the 107 signed last year, according to a report by the Australian Investment Council and EY. The venture capital deal count has also fallen from 151 last year to just 32 in the year-to-date.
PEI caught up with Stanford to discuss the fund’s appetite for domestic venture capital and its aversion to large Australian buyouts.
Q: What is the logic behind your push into VC?
A: A lot of our Australian portfolio is invested in venture, so should we suffer another financial dislocation, our exposure is more in the startup and growth equity space. Our theory is that it makes us less exposed to macroeconomic shocks. If you were to plot venture on an X/Y chart, I see the curve growing very quickly but tapering off as they become larger and growth slows. We’ve been going down that yield curve in terms of taking exposure to companies at an earlier stage of that life-cycle.
Q: Why does Hostplus shy away from large buyout funds?
A: Historically, a lot of the large buyout managers in Australia wanted to be your friend when they were in fundraising mode and then you wouldn’t hear them or see them for three years, at which point they’d pop up again. The other reason is that from a fee perspective they would historically charge fees on co-investments.
On top of that, the Australian market is very concentrated, even in public equities, and these buyout managers were doing a lot of take-privates and then relisting them. We already had exposure to listed equities; the whole point of investing in this asset class is to get exposure to different types of investments and macroeconomic risks. That’s why we typically shied away from it across the board in favour of smaller mid-market buyouts, and more recently doing venture and growth equity.
There was a period with a lot of hubris among large Australian buyout managers and they did very well in the regional space but you didn’t have to be a rocket scientist to see that they could get caught in that cookie-cutter mode. They had a lot of success and narrowed in on a lot of strategies like retail, but when the market shifted we didn’t think they were well-placed for the future. We felt they hadn’t thought about diversifying their strategies.
Q: Would you commit to a large buyout fund in future?
A: We never say never. You’ve always got to keep an open mind about everything. To date, we haven’t seen anything compelling. We’re continuing to look but we’re not spending a lot of time on it either.