Finding growth in private markets

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Investors have traditionally turned to the share market for growth, but with the ASX 200 still sitting well below its pre-GFC highs, alternative investments are becoming increasingly popular. From less than 5% of the industry in ’97, alternative assets now account for nearly 20% of funds under management.

Source: Rainmaker Roundup (September 2016), Blue Sky Alternative Investments

Within the broad umbrella of alternative investments, ‘growth equity’ bridges the gap between venture capital and leveraged buyouts. Nick Dignam, Investment Director at Blue Sky Private Equity, says they’re looking for private companies with no prior institutional ownership who are growing revenues at more than 10% per annum. There are over 50,000 Australian companies with between 20-199 employees, compared with around 1,100 ASX-listed companies with a market cap over $20 million.

Company growth stages

Source: AVCAL

Why growth equity?

According to data from US-based Private Equity firm, Cambridge Associates, growth equity, the area shown at the intersection of Venture Capital and Private Equity in the diagram above, has historically produced lower rates of losses than either buyouts or venture capital. Despite this lower loss ratio, it has produced greater returns than venture capital, and is comparable to the returns on leveraged buyouts – but without the leverage. The market is also less competitive, with less funds raised than either of its competing private equity subsets.

How do I access it?

Private equity has traditionally only been available to high net worth investors, but since 2014, the Blue Sky Alternatives Access Fund (ASX:BAF) has given retail investors the opportunity to invest in a range of alternative assets via their ASX broker. In the video below, Nick Dignam, Investment Director at Blue Sky Private Equity, explains what they’re looking for in a successful growth equity investment.

For further insights from Blue Sky Alternatives, please click here


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