Monthly Agenda May 2022 – Alternatives

Global M&A activity fell in Q1, 2022 compared to the activity seen in the back half of 2021 but were healthy compared to the past five years. Tech was a dominant force during the quarter, continuing adecade-long trend. With the prolonged inflationary pressures, natural resources prices have steadily risen and show no signs of falling. A more lucrative pricing environment has begun to attract capital to the space.  While a significant amount of capital has flown to traditional energy spaces, the renewable energy space continues to grow as well. Investment into the green energy sector also benefits from a plethora of natural resources opportunities.

Chart 1: Global M&A Activity

Source: Pitchbook

Australian-focused capital assets under management has continued to advance over the past few years attributable to an increase in the value of existing investments and the strong fund-raising environment. While fundraising slowed marginally in 2021 in comparison to 2020, it’s still higher than the years prior and the second highest since 2010. Aggregate capital raised fell by 10% year-on-year, as a total of 36 private capital funds achieved final close in 2021, raising $9.1bn. The figure was still 23% more than 2019’s $7.4bn.

Chart 2: Australian-focused private capital fundraising, 2010-2022 YTD

Source: Preqin and Australian Investment Council

Foreign investors have grown more active in Australia over the years. Two decades ago they accounted for just 18% of investors in Australian private capital funds; since 2017 they have accounted for just under half at 49%. The combination of a stable political environment, a strong economy, robust governance, and dynamic market conditions makes Australia an attractive investment landscape. North American investors are the largest contingent of foreign investors in Australia, accounting for 48% of the funds that have received foreign funding in the past five years. Private equity is the most attractive asset class to foreign investors, making up almost half of known commitments to Australian private capital funds.

Chart 3: Foreign funding in Australian private capital funds

Source: Preqin and Australian Investment Council

Stephen Dickinson
Investment Analyst

Darragh Kennelly
Investment Analyst