June 2016

privateequityinternational.com

THE 2016
AUSTRALIA
REPORT
A special supplement

Surviving the macro headwinds

Healthcare: Ripe for consolidation
Inside the S Kidman sale process
Fears over foreign investor rules
The six investors any GP should visit

...and more

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Pacific Equity Partners
Gilbert + Tobin
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 Forcing a change
TOBY
On p. 13 we look at a bright spot of that
ISSN 14748800
MITCHENALL domestic market: healthcare. The country is
EDITOR'S
JUNE 2016
LETTER
providing fertile hunting ground for mid-mar-
Senior Editor, Private Equity ket firms with the knowhow and resources to
Toby Mitchenall
Tel: +44 207 566 5447 consolidate a number of different healthcare
toby.m@peimedia.com

Americas Editor, Private Equity

sub-sectors. A rush of successful exits has
Marine Cole
Tel: +1 212 633 1455
ensued.
marine.c@peimedia.com
One issue that runs through the supplement
Web Editor
Victoria Robson is that the resolutely mid-market domestic
Tel: +44 207 566 5463
victoria.r@peimedia.com A change in leadership is something Australia general partner community does not neces-
Senior Reporter is getting quite used to. As this supplement sarily cater to the needs of its super-sized LP
Isobel Markham
Tel: +44 207 167 2032 heads to the printers, the election campaign community. This is not a uniquely Australian
isobel.m@peimedia.com
is in full swing with the country preparing to experience, but it is stark.
Asia Reporter
Carmela Mendoza
Tel: +852 2153 3148
select what could be its fifth prime minister The LPs, therefore, are not holding back
carmela.m@peimedia.com in three years. when it comes to creative ways of putting long-
Staff Writer
Annabelle Ju
But while the countrys political leadership term capital to work. On p. 15 we speak to
Tel: +1 646 380 6194
annabelle.j@peimedia.com may change with the wind, the private equity QIC, the government-owned investment man-
Contributors industry does not. agement business, about its ground-breaking
Matthew Goodburn
Clare Pennington Intergenerational change is something with investment in the North Australian Pastoral
Production Editor which the private equity industry as a whole Company, one of Australias most significant
Mike Simlett
Tel: +44 20 7566 5457 has struggled. Some firms have been able to cattle companies. It took the organisation a
mike.s@peimedia.com

Production and Design Manager

effect a well sign-posted, choreographed suc- long time to find an agriculture investment that
Miriam Vysna
Tel: +44 20 7566 5433
cession plan, handing control from a small met its needs in terms of ticket size: we find out
miriam.v@peimedia.com
group of founders to a cadre of new leaders. why. As a successful deal it stands in contrast
Head of Advertising
Alistair Robinson These firms tend to raise new funds. In other to the broken sale of another substantial agri
Tel: +44 20 7566 5454
alistair.r@peimedia.com cases, however, founders fail to relinquish asset: the S Kidman cattle business. On p. 19
Subscriptions and Reprints enough control or equity to allow the firm to we learn more about the perils of politicised
Andre Anderson, +1 646 545 6296
andre.a@peimedia.com move on successfully to the next generation. deal-making.
Jack Griffiths, +44 207 566 5468 As we note in our market overview (p. 4), I would like to thank our sponsors; our
jack.g@peimedia.com

Sigi Fung, +852 2153 3140

this industry trend is being felt very keenly keynote interview is with leading GP Pacific
sigi.f@peimedia.com in Australia. The latest casualty is mid-market Equity Partners (p. 10) and our expert com-
For subscription information visit
www.privateequityinternational.com.
firm CHAMP Ventures. Private Equity Interna- mentary (p.16) comes from law firm Gilbert
Group Managing Editor tional broke the story in May that the firm + Tobin.
Amanda Janis
Tel: +44 207 566 4270 had abandoned plans to raise a new fund to Change is certainly afoot in the Australian
amanda.j@peimedia.com
instead manage out the remaining assets in the private equity market.Whether it is the sort of
Editorial Director
Philip Borel portfolio. The driver was issues surrounding change that GPs will like remains to the seen.
Tel: +44 207 566 5434
philip.b@peimedia.com succession planning.
Director of Research & Analytics
Dan Gunner, dan.g@peimedia.com
This is an issue identified by Steve Byrom, Enjoy the supplement,
Publishing Director
head of private equity at Australias sovereign
Paul McLean, paul.m@peimedia.com
wealth fund, Future Fund (p. 8). Byrom, who
Chief Executive
Tim McLoughlin, tim.m@peimedia.com oversees a private equity programme of around
Managing Director Americas A$11.5 billion ($8.6 billion; 7.5 billion), says Toby Mitchenall
Colm Gilmore, colm.g@peimedia.com
it is causing the investor to be cautious about
Managing Director Asia e: toby.m@peimedia.com
Chris Petersen, chris.p@peimedia.com the domestic private equity market.

j u n e 2016 t he 2 0 1 6 aust ralia report 1

CONTENTS

THE 2016
AUSTRALIA REPORT
4 Pressing on
Against a more muted macro-
economic backdrop, the Australian
private equity community continues
to grapple with issues that have long
haunted the industry
15 Getting the beef
Agri Investor caught up with QIC
principal Phillip Cummins to find out
why the fund manager bought an
80 percent stake in one of Australias
biggest beef producers

6 Moves, deals and openings 16 Expert commentary:

Some of the biggest stories in
Australia and New Zealands private
equity industry, as reported by
Private Equity International and
our sister titles
8 LP interview: Future Fund
Steve Byrom, head of private equity
at Australias Future Fund, talks asset
allocation, partnering with external
managers and investment trends
down under
Gilbert + Tobin
Strong growth in the private equity
market is tempered by concerns
about new foreign investor rules,
4
say John Williamson-Noble and Tim
Gordon of law firm Gilbert + Tobin
19 Inside the S Kidman sale process
The cattle empires managing
director Greg Campbell explains his
frustration with the decision to block
the sale

10 Keynote interview: 20 LP watchlist: Wish you were here

Pacific Equity Partners
A stable economic backdrop and
well-structured PE market are
throwing up a host of new
acquisition opportunities, says
Tim Sims of midmarket firm
Pacific Equity Partners
13 Desperately seeking scale
Willing buyers, ageing demographic
and a fragmented market make
selective healthcare assets highly
prized by GPs who have the knowhow
to take advantage
Australias most active LPs have made
more than 60 commitments to funds 15
since 2010. Here are six who should
top any GPs list of potential investors
to visit
22 Data room
From funds raised to targets met
(and missed), PEI Research &
Analytics offers a snapshot of the
country's private equity industry
24 Funds in market
We put the spotlight on some of
Australias key vehicles 19

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 OVERVIEW
MARKET DYNAMICS
Pressing on
Against a muted economy, Australia's private equity community continues
to grapple with issues that have long haunted the industry, writes Isobel Markham
The last 12 months have not been without
challenges for the private equity industry in
Australia. In January the Australian dollar
plummeted against its US counterpart,
causing issues both for corporates and for
investors into offshore illiquids who sud-
denly found themselves overweight as the
denominator effect came into force.
And after a politically turbulent year
the country saw its first double dissolution
of parliament snice 1987 Australians will
be heading to the polls on 2 July for a gen-
eral election.
Macroeconomic headwinds have been
coupled with an increase in negative public
sentiment toward private equity on the
back of the collapse of electronics retailer
Dick Smith in December.
Prior to Dick Smiths initial public offer-
ing in 2013 it was owned by Anchorage
Capital Partners. Last November its shares
fell almost 60 percent as the company
revealed its stock was worth $60 million
less than expected, with profits forecast to
fall short of its $48 million target. Shares in
the company ceased trading in early January.
GLOBAL REACH
Sources of new PE and VC commitments (%)
2014
3 4
15
Australia
54 Asia
24
North America
Europe
Unknown
Source: AVCAL
4 private equity international june 2016
The same month as Dick Smith hit the
headlines, former Pacific Equity Partners-
backed Spotless issued a shock profit warn-
ing, causing shares to plummet 40 percent.
Theres been some reputational chal-
lenges in the market, particularly as a result
of Dick Smith, Spotless and a few other pri-
vate equity-backed IPOs that hit the skids,
says Simon Feiglin, a managing partner in
The Riverside Companys Melbourne office.
Even when talking to business owners
about selling their businesses rather than
listing, it reinforces this old-school [image
of] private equity as asset strippers.
Tim Martin, a partner at Crescent Capi-
tal Partners, agrees that thanks to a combi-
nation of challenges in the broader economy
dealflow is relatively muted.
My sense is its going to be a relatively
quiet market from a dealflow perspective,
partly because of the general election, partly
because were in this ok but not great econ-
omy. I think it will be generally cautious.
The fund manager community is also
in a state of upheaval. While there are new
firms entering the market such as Archer
2015
2
8
9 28
Australia
Asia
North America
23
Europe
Other
30
Unknown
Growth, Archer Capitals lower mid-market
affiliate, which has spun out as The Growth
Fund others are falling by the wayside.
The latest casualty is mid-market firm
CHAMP Ventures, which has scrapped
plans for a new fund and decided to wind
down in the face of insurmountable road-
blocks associated with succession planning.
Following a bumper 2014, when nine
Australia-headquartered funds closed
having amassed a combined $5.68 billion,
domestic fundraising was more understated
in 2015, with six funds raising $2.07 bil-
lion, according to PEI Research & Analytics.
A significant proportion of this was
Pacific Equity Partners V, the latest vehicle
from Australias largest private equity firm,
which closed above its A$2.1 billion hard-
cap in September.
Meanwhile, the connection between the
local fund manager community and domes-
tic LPs is weakening.
In the financial year 2015, which runs
from 1 July-30 June, overseas investors
overtook domestic investors as the source
of new commitments to private equity
and venture capital funds. Australian inves-
tors accounted for just $856 million, or
28 percent of new commitments, down from
54 percent in 2014.
Thanks to a compulsory defined con-
tributions programme, Australias pension
market is the fifth largest in the world,
valued at around $1.5 trillion, according
to Willis Towers Watsons Global Pension
Assets Study 2016. What is more, between
2005 and 2015 it represented a compound
annual growth rate of 9.1 percent.
Superfunds compete with one another
for members on the basis of the fees they

Building bridges: Australian private equity faces a PR challenge from a sceptical public
charge, meaning the entire industry is fix-
ated on fees and costs. Faced also with
regulations requiring superfunds to main-
tain a highly liquid position, private equity
becomes a tough sell.
Some local investors have moved out of
private equity investing altogether. In May,
AustSafe Super, the superannuation fund
for rural and regional Australia, told Pri-
vate Equity International that it no longer
has appetite for private equity investment,
although it is still interested in real estate
and infrastructure funds.
What is more, the sheer size of the
superfunds themselves means huge swathes
of the private equity landscape including
most domestic funds are out of reach.
In some ways youre effectively self-
selecting out of a range of opportunities
because of [your] minimum investment
threshold, says one industry-specific super-
fund LP. You want each investment to have
a meaningful impact.
With such rapid growth, superfunds
have to think harder about manager selec-
tion if they want to build relationships for
j u n e 2016
the long term, says Ken Licence, managing
director at Sydney-based placement agent
Principle Advisory Services.
In some cases people have been invest-
ing via funds of funds, but doing it on a
bespoke separate account basis, he says.
Tempting as it may be for fund man-
agers to shoot for a larger fund size to
accommodate hefty equity cheques, GPs
should be mindful that the bulk of the
opportunity set remains in the lower
mid-market. AVCAL data show that in the
2015 financial year equity investments of
between A$20 million and A$150 mil-
lion accounted for the majority of capital
invested, with the average equity invest-
ment at A$36 million.
Australian fund managers, says AVCAL
chief executive Yasser El-Ansary, under-
stand that dynamic very well, and maintain
discipline around fund size, which also helps
to keep valuations reasonable.
Crescent closed its latest vehicle on
A$675 million in December 2014 after
just 10 weeks in market having attracted
interest of more than twice that amount.
t he 2 0 1 6 aust ralia report
OVERVIEW
We could have raised a bigger fund
but we felt that the best opportunities and
most consistent dealflow is in the middle
market, Martin says. But once in a while
a larger deal comes along, and one of the
reasons were happy raising a smaller fund
is weve got some excellent LPs that are
very happy to co-invest alongside us, which
means when you need to you can stretch
up to a slightly larger deal.
For an LP community so focused on
fees, direct and co-investment may seem
like obvious answers. While co-investment
is proving popular among local LPs, for the
most part they are yet to embrace direct
investment on a large scale, El-Ansary says.
We havent seen a groundswell of
momentum towards LPs direct investing
themselves into the underlying assets, he
says. Co-investment, by contrast, is more
readily apparent.
One investor taking the bull by the horns
is Queensland government-owned invest-
ment manager QIC. Forty percent of QICs
private equity allocation goes toward co-
investment, co-underwriting and direct
investment, with direct investments for
the time being confined to Australia.
In May, QIC agreed to acquire an 80
percent interest in the North Australian
Pastoral Company, one of Australias most
significant cattle companies managing 5.8
million hectares across Queensland and the
Northern Territory and around 178,000
head of cattle.
NAPCO fits neatly into a wider narra-
tive into which QIC and other Australian
investors, both GPs and LPs, have been
looking to tap.
For local deals we are looking at sec-
tors where we believe Australia has a com-
petitive advantage, says Marcus Simpson,
global head of private equity at QIC. These
include food production, healthcare ser-
vices, leisure, and education. All those sec-
tors have huge links up to Asia which drive
growth and opportunity. n
5
 NEWS IN BRIEF
ROUND-UP
Moves, deals and openings
Some of the biggest stories in
Australia and New Zealands private
equity industry, as reported by
Private Equity International
and our sister titles
QIC MAKES FORAY INTO
AGRI SECTOR
The $78 billion Queensland Invest-
ment Corporation (QIC) has agreed
to buy 80 percent of cattle station
operator North Australian Pasto-
ral Company in a deal reportedly
worth in excess of A$400 million
($295 million; 258 million). The
company is one of Australias oldest
and largest agricultural enterprises,
managing 5.8 million hectares across
Queensland and the Northern Ter-
ritory and around 178,000 head of
cattle.
QIC is acquiring its stake from
part owners the Foster family, which
will retain a 20 percent interest in
the company, as well as the 34 per-
cent currently held by UK-listed MP
Evans. QIC chief executive Damien
Frawley said the investment was
made with a 20- to 30-year time
frame in mind, and that management
would be retained.
MEDICAL RESEARCH FUTURE
FUND DIVES INTO PE
Australias Medical Research Future
Fund (MRFF) has made its first allo-
cation to private equity in a move
to diversify its portfolio. MRFF
was valued at A$3.1 billion as of
31 March, distributing 8 percent of
its funds to private equity. The fund
aims to have around A$1 billion to
6 private equity international june 2016
spend every year on new medical
research projects. Established in
January 2015, it is the largest of its
kind in the world, with a target of
A$20 billion by 2020.
To create the fund, about A$1 bil-
lion in uncommitted capital from the
existing Health and Hospitals Fund
was transferred into MRFF last Sep-
tember and another A$2 billion was
added by the Australian government
in December. The Future Fund, Aus-
tralias sovereign wealth fund, man-
ages MRFF.
AUSTRALIA REJECTS
CHINESE-LED TAKEOVER
The Australian government has
rejected a Chinese-Australian bid
for cattle property S Kidman & Co,
said to be worth A$371 million.
Australian Treasurer Scott Morrison
said the offer may be contrary to
the national interest and the deal
would have put more than 1 percent
of Australias total land in the hands
of a consortium led by Pengxin.
A$371m The group backed by Pengxin,
Size of rejected
Chinese- Shanghai CRED Real Estate and
Australian Australian Rural Capital was given
bid for cattle
property
96 hours to respond to the govern-
S Kidman & Co ments decision. S Kidmans chief
executive, Greg Campbell, said the
8% company was now looking for bid-
Amount
Medical
ders from Australia, New Zealand,
Research the US or Chile.
Future Fund
has distributed
NZ SUPER SELLS $73M
to private
equity OF FUND STAKES
New Zealand Super Fund has sold
178,000 stakes in three of its offshore alter-
Size of the
native funds valued at NZ$105
herd at QICs
new agri million ($73 million; 63 million)
investment as it focuses on fewer and deeper
external manager and advisor rela-
tionships.
The superannuation fund sold
interests in buyout fund Hellman
& Friedman VII, growth equity
fund JMI Equity Fund VII and HIG
Bayside Loan Opportunities Fund
II, a mezzanine debt vehicle. Those
stakes were worth NZ$34 million,
NZ$34 million and NZ$37 million,
respectively, according to the funds
2015 annual report. Proceeds from
the sale would be invested in its Ref-
erence Portfolio, a low-cost, passive
portfolio of listed stocks.
IFM APPOINTS FIRST
CHIEF ECONOMIST
Melbourne-based fund manager IFM
Investors has appointed Alex Joiner
as chief economist in a newly created
role for the firm. Joiner will start
working for IFM in July and will
report to Joshua Lim, chief commer-
cial officer at IFM. He will be work-
ing with investment teams globally
and assisting with investment deci-
sions across all asset classes.
Joiner was a former chief econ-
omist at Bank of America Merrill
Lynch in Australia. He also held roles
at the Australia and New Zealand
Banking Group, where he was a mac-
roeconomist covering the property
sector. IFM has A$67 billion ($51
billion; 45 billion) in assets across
private capital, debt, infrastructure
and listed equities.
BLACKSTONE NAMES
ASIA-PACIFIC CHAIRMAN
The Blackstone Group has named
Christopher Heady as chairman of
its Asia-Pacific businesses. Heady

was previously head of real estate
for the firm. He joined Blackstone in
2000 and played a key role in around
$3 billion worth of acquisitions in
China, India, Japan and Australia.
Jan Nielsen, who currently leads
the firms private equity investments
in South-East Asia, Japan and Korea
and is chief operating officer for
Blackstone Capital Partners in the
region, will work closely with Heady
for the firms businesses and adminis-
trative functions in Asia-Pacific.
TPG REPLACES
AUSTRALIA CHIEF
TPG Capital has appointed Joel
Thickins as country head of Aus-
tralia. He takes over the role from
country head and Asia co-head Ben
Gray, who will stay with TPG until
the end of the year.
Thickins has been with private
equity firm CHAMP since 2008,
where he had originated and exe-
cuted buyouts in the agricultural,
industrial and consumer market
segments as a director.
Before his time at CHAMP, he
was vice-president at Dyno Nobel
Limited, where he led acquisitions in
j u n e 2016
China, Europe and North America.
Earlier in his career, Thickins held
strategic and operational positions
with Boral Limited in the United
States. TPG manages over $70 bil-
lion of assets and $6 billion through
TPG Capital Asia. In March, TPG
closed its latest fund, TPG Partners
VII, on its $10 billion hard-cap.
KKR HANDS ASIA COO TOP
AUSTRALIA JOB
KKR has named Scott Bookmyer,
chief operating officer of KKR Asia,
as head of KKR Australia. He will
lead KKR Australia from July and
will remain COO of Asia-Pacific,
but will relocate to Sydney from
Hong Kong.
Joseph Bae, member and manag-
ing partner of KKR Asia, said that
transferring Bookmyer to Sydney
will leverage his experience both
globally and in the Asia-Pacific region
and strengthen the firms franchise
in a strategically important market.
Bookmyer joined KKR Asia as COO
in 2014, after originally joining
KKR Capstone in 2002 supporting
operational improvements in North
American private equity portfolios.
t he 2 0 1 6 aust ralia report
NEWS IN BRIEF
OAKTREE SETS UP SHOP
IN SYDNEY
US debt giant Oaktree Capital
Management opened a new office
in Sydney in March to increase its
exposure in Australia and New Zea-
land. Byron Beath, a former group
director at Macquarie Bank, will lead
investment activities in the region.
Beath joined the firm this year to
head its Global Principal Group in
ANZ. Before Oaktree, he spent 15
years at Macquarie, most recently
Down on the in the Corporate Asset and Finance
farm: QIC has
bought a stake in
division. Oaktree first established its
one of Australias presence in the Asia-Pacific region in
largest agri
enterprises
1998 and the firm has more than $97
billion of assets, with offices in Bei-
jing, Hong Kong, Seoul, Singapore,
Shanghai and Tokyo.
GENERAL ATLANTIC BUYS
ZIMMERMAN STAKE
New York-headquartered private
equity firm General Atlantic made
a minority investment in Austral-
ian fashion and swimwear label
Zimmermann for an undisclosed
amount in April. The investment
will fuel the companys expansion
in the US, Europe and other global
markets through new store openings,
selective wholesale partnerships and
e-commerce. Under the deal, Gen-
eral Atlantic will join the Zimmer-
mann board and serve as strategic
partners. Zimmermanns founders
and management team will remain
majority shareholders. n
Contributing titles:
Private Equity International,
Private Funds Management,
Secondaries Investor, Private Healthcare
Investor and Agri Investor
7
 LP INTERVIEW
SOVEREIGN WEALTH FUND
Looking into the Future
Steve Byrom, head of What does Future Funds private
equity portfolio look like?
private equity at Australias
Private equity makes up 10 percent of our
Future Fund, talks to whole fund or around A$11.5 billion ($8.6
Carmela Mendoza about billion; 7.5 billion). We invest through 28
asset allocation, partnering external investment managers with a team
of seven investment professionals in-house
with external managers
overseeing our managers and working with
and the Australian private them to identify strategies and opportuni-
equity market ties including co-investment opportunities.
Most of our private equity exposure
around 60 percent is through the US,
with sizeable exposure through Europe,
UK, emerging markets and Australia. The
venture capital and growth segment is sig-
nificant at around 40 percent of the pri-
vate equity portfolio with co-investments,
buyout strategies and distressed opportuni-
Id like to see a ties each roughly around 2 percent.
resurgence in the
Australian later How will it look different in five
stage growth and years time?
The Future Fund dynamically manages the
small buyout markets
whole portfolio, so the shape of the port-
folio will depend on the opportunities we
find across asset classes and what we find
in the private equity space in particular.
That said, we continue to be attracted to
the opportunities in innovation and small
company growth in developed and emerg-
ing markets, including China and India,
and particularly where bank financing and
public market funding is constrained.
How much resource do you have
in-house?
We have seven investment professionals
within the private equity team and could
possibly add one or two people to that in
a couple of years. The Future Fund has a
Byrom: co-investment is a significant part of the
one team approach meaning that people
funds programme from across the organisation are expected
8 private equity international june 2016
to contribute to investment decisions
including those outside their particular
asset class. This means we can access the
thinking and perspectives of people in our
listed equity, infrastructure, property and
credit and hedge fund areas to help us assess
opportunities.
We also strongly believe in working in
close partnership with our external man-
agers and we see them very much as an
extension to our internal team.
What are the major considerations
when building an in-house team
what kind of talent is needed and what
kind of KPIs should be set?
We look for people who have the expe-
rience and capability to engage as equals
with our general partners while having an
appetite and willingness to think about the
total Future Fund portfolio. Practically that
means we have brought on people with a
mix of private equity specific and invest-
ment management backgrounds. Right
across the Future Fund people are not
rewarded on the basis of the asset class on
which they are primarily focused, instead
all staff are exposed to the performance of
the portfolio as a whole. Thats a particular
characteristic of our one team, one port-
folio model.
Is private equity an easy sell
internally?
The Future Fund started investing in 2007
and private equity has always been expected
to be part of the programme, with our
first investments made in 2008. Our view
is that it gives the portfolio a good means
of accessing alpha, innovation and idiosyn-
cratic growth that is hard to get otherwise.
That said, every investment idea in any

asset class has to stand on its merits, so
I think it would be wrong to think of any
aspect of the Future Funds portfolio as an
easy sell.
How attractive to you is Australias
private equity market?
Our return objective (CPI +4.5 percent per
annum over the long term) is couched in
terms of Australian inflation and we operate
in Australian dollars so as a general point,
Australian investments have some in-built
advantage and were overweight to Aus-
tralian private equity in comparison to its
weight globally.
We continue to see opportunities in
this market, have good relationships with
a number of Australian managers and look
at opportunities to build on this, while
acknowledging that were a global inves-
tor and with a global opportunity set to
consider.
Which other geographies around
the world have attracted your
attention?
We look globally and clearly our current
weighting is towards the US, other devel-
oped markets and increasingly emerging
markets, particularly in Asia.
What is your attitude to first-time
funds?
We consider all opportunities where we
can put capital to work at a meaningful
scale, but naturally need to look particularly
hard at opportunities where the general
partner is new.
Its not necessarily a deal-breaker and we
are attracted to the idea of getting access
to a strategy that is new and where there is
strong alignment to our interests.
j u n e 2016
How about direct investments?
We invest through external invest-
ment managers, but co-investment is a
significant part of our programme and
one that has grown really materially over
the last couple of years. While it is more
demanding on our time, there are benefits
in terms of increasing exposure to quality
opportunities and reducing overall fee drag.
What are your key criteria in partner
selection, and in turn, what makes
Future Fund a good co-investment partner?
As you would imagine we assess partners
based on past performance, stability of the
business, quality of people, clarity and con-
sistency of process and the fees and terms
on offer. Well consider the opportunities
for co-investment and how those opportu-
nities are structured and made available to
us. Well also look at the extent to which
partners can contribute insights and per-
spectives to our macroeconomic views and
perspectives on investment opportunities
across markets. In the end, what we are
looking for are partners who are aligned
to our interests and willing to genuinely
partner with us.
Ultimately, what makes anyone a good
co-investment partner is the ability to make
quick decisions and act upon them. In addi-
tion, we recognise the importance of the
general in this equation and have no desire
to climb over the top of them.
Is private equity becoming more or
less attractive relative to other
private asset classes?
In a search for alpha, private equity contin-
ues to be attractive to us, but what we are
seeing is that there is increasing competi-
tion from other investors and the supply
t he 2 0 1 6 aust ralia report
LP INTERVIEW
A$117bn
Assets under management
at 31 March 2016
7.4%
Returns per annum since inception
9.8%
Allocation to private equity
at 31 March 2016
22.9%
Rise in cash holdings due to
the prospects of lower future returns
and demand impact is having a negative
impact on returns. This is one reason why
we are selective about the opportunities
and why we look for highly disciplined
managers who can offer co-investment
opportunities.
Whats next for the Australian
private equity market?
We have recently seen a resurgence in the
venture capital market with a whole raft
of new firms cropping up. Id like to see a
resurgence in the later stage growth and
small buyout markets too, which have tra-
ditionally been the best hunting ground for
private equity in this market. In terms of
challenges, intergenerational transition of
the general partners is looming large and is
leading us to be cautious as its something
that the private equity industry generally
does not do very well. n
9
 INDIA ROUNDTABLE
KEYNOTE PACIFIC EQUITY PARTNERS
INTERVIEW: ACTIS
The wider picture
Local private equity The Australian economy has had a remark-
able run without a recession for more than
remains strong,
25 years. It has achieved real gross domes-
underpinned by a stable tic product (GDP) growth of 3.1 percent
macroeconomic backdrop, per annum. Its central bank, the Reserve
a well-structured PE Bank of Australia, forecasts this growth to
market, and a host of new continue at approximately 3 percent over
the mid-term.
acquisition opportunities, Some key drivers that underpin its resil-
says Tim Sims, managing ience to global economic fragilities include
director of Australian mid- population growth from both immigration
market private equity firm and domestic births, a stable and con-
servative banking system, and domestic
Pacific Equity Partners consumption that accounts for about 80
percent of GDP. The fundamental ingre-
dients are theoretically in place for inves-
tors looking at Australia and yet headlines
portray it as an economy roiled by the end
of a long resources boom and falling Chi-
nese demand.
Cameron Blanks, managing director
of Pacific Equity Partners (PEP) says the
impact of the Chinese ride and the com-
modities boom is much more muted than
media would have us believe. The China
discussion is overstated on almost every
count. China consumes only a modest por-
tion of Australian output today, accounting
for just 6 percent of GDP. This is largely
low-cost iron ore and coal, with China
still behind both Japan and Korea with
respect to steel consumption per capita.
That same story that Australia is vulnerable
to Chinas growth isnt reflected in real-
ity: niche sectors of the economy such as
new mining construction may slow, but the
broader domestic economy continues to
grow strongly. Were seeing that reflected
in the growth rates being achieved across
Sims: Australian private equity remains strong our own portfolio.
10 private equity international june 2016
PEP has operated in the local market
since 1998, successfully selecting buyout
opportunities in the mid-cap space. The
firm is the largest and most active domestic
player in Australia, with almost A$4 bil-
lion ($3 billion; 2.6 billion) in assets under
management. Significant recent exit activity
has seen the firm return A$6.4 billion over
the last three years, ensuring that each of
its four funds are top quartile performers
relative to Cambridge benchmarks.
The firm is currently investing from its
fifth flagship fund PEP V, which closed in
September 2015 at its hard-cap of A$2.1
billion plus substantial co-investment rela-
tionships. Among Fund Vs investments are
Kiwi wellness company Manuka Health,
food manufacturing business Pinnacle
Foods, as well as Auckland-based private
education company Academic Colleges
Group, with a number of other deals in
the pipeline.
PEP credits its success to the opera-
tional strength of a team of about 25
investment professionals, backed up by 10
managing directors. Blanks says to excel in
this market, firms must be well networked
in the local environment and have a trusted
brand in the business community.
People keep telling us that Australia is
under pressure because of the China issue,
Blanks adds. That rumours been circulat-
ing very strongly for eight years and yet
weve continued to make record-breaking
consistent growth.
NEW OPPORTUNITIES
Globally, Australia remains the second most
favoured country for Chinese investment,
with almost $78.7 billion in accumulated

volume from 2005-15, according to
KPMGs latest Chinese Investment in Aus-
tralia Report.
While commentators worry that a slow-
down in China and steep falls in commodity
prices would dent the economy and even
threaten its 25 years of unbroken growth,
PEP says it is actually seeing encouraging
opportunities for Australias non-resource
sectors.
An interesting trend is the impact of
Chinas growing middle class. Several key
sectors are emerging as material contribu-
tors to the economy.Travel is one example;
inbound tourism from China has trebled
in the last six years. Education is another
sector, where currently the number of
international students studying in Aus-
tralia is more than the UK and Canada.
We have a more
discriminating
market now
where theres good
institutional IPO demand
for high quality assets.
PE firms are aligned to
the success of their IPOs
by keeping a substantial
stake post listing
Shannon Wolfers
j u n e 2016
KEYNOTE INTERVIEW: PACIFICINDIA ROUNDTABLE
EQUITY PARTNERS
The food and wine sector is growing, too.
The increase in Chinese consumer spend-
6%
Share of Australian GDP that goes
ing has meant that China is now amongst to China
the top three export markets for Australian
wine, Blanks points out.
SUPPORTIVE AND BUOYANT MARKET
$78.7bn
Accumulated Chinese investment
Australian private equity has gone through in Australia from 2005-15,
a period of consistently open financing according to KPMG
markets and a listed market thats been
supportive of exit activity for high qual-
ity companies, says Tony Duthie, managing
director at PEP.
26.4%
Weighted average return of PE-backed
Weve seen quality dealflow over time IPOs over A$100m from 2013-15
as a result of a strong macroeconomic back-
drop, and a corporate environment thats 8%
supportive of getting acquisitions done, Weighted average return of non-PE-
backed IPOs over the same period,
says Duthie. Thats amid a market where according to the Australian Private
competition for assets is more limited than Equity & Venture Capital Association and
elsewhere in the world. Rothschild Australia
Of the private equity space in Australia,
deals are done on average at 8x EBITDA
that compared with, for instance, the US
mid-market where average EBITDA pur-
A$4bn
Pacific Equity Partners assets under
chase multiples are well into the double management
digits. Duthie also notes that private equity
penetration in Australia is below interna- A$6.4bn
Exit returns to investors from PEP over
tional benchmarks. While Australia is the
the last three years
sixth largest mergers & acquisitions (M&A)
market in the world, private equity accounts
for only 16 percent of total M&A activity.
Thats about half of penetration levels in
the US and UK.
With regard to deal sourcing, Duthie
says that while the breadth of new deal
opportunities is as strong as ever, it has
seen a change in the style of deals that have
been available in the market.
Ten years ago most large-scale busi-
nesses would sell by appointing an
t he 2 0 1 6 aust ralia report 11
 KEYNOTE INTERVIEW: ACTIS
PACIFIC EQUITY PARTNERS
investment bank, sending out infor-
mation to a broad universe of buyers on
an undiscriminating basis, and then run-
ning a very formal and regimented auction
process. More recently, those formal auc-
tion processes have disappeared. A large,
experienced and well connected team is
therefore critical to success in that envi-
ronment.
PE-BACKED AND SUCCESSFUL
Duthie also points to the success of many
private equity backed initial public offerings
(IPOs) in Australia.
In a report from the Australian Private
Blanks: China discussion is overstated Equity & Venture Capital Association and
Rothschild Australia, an analysis of 67 IPOs
People keep with an offer size of at least A$100 million
showed that PE-backed IPOs from 2013 to
telling us that 2015 have outperformed non-PE-backed
Australia is IPOs, achieving a weighted average return
under pressure because of 26.4 percent, compared with just 8 per-
cent from non-PE backed floats.
of the China issue. Private equity firms have brought some
That rumours been sizeable companies to market in 2015.The
circulating very strongly years largest listings include PEP-backed
share registry and pension services provider
for eight years and yet
Link Group and Bain Capitals cloud com-
weve continued to puting software vendor MYOB. Domestic
make record-breaking private equity houses including Next Capi-
tal, Ironbridge and Anacacia were respon-
consistent growth
sible for most of the IPO exits in Australia
Cameron Blanks last year, representing almost half of total
listings by market capitalisation.
Amid increased scrutiny over private
equity divestments, PEP says the track
record of PE-backed IPOs speaks for
itself. The notion that PE firms would
deliberately overprice IPOs would be an
ill-conceived business idea for PE firms;
12 private equity international june 2016
we are repeat players in the IPO market
and so protecting our reputation long
term is key. There are many checks and
balances in an IPO process, more checks
and balances, in fact, that Im aware of
are applied to people who jump out of
airplanes. And yet from time to time those
parachutes disappoint and when they do,
because of the nature of PE, theres a lot
of criticism. The reality is the track record
of PE-backed IPOs is superior to non-PE
backed IPOs, says Sims.
Shannon Wolfers, a director at PEP,
adds: We have a more discriminating
market now where theres good institu-
tional IPO demand for high quality assets.
PE firms are aligned to the success of their
IPOs by keeping a substantial stake post
listing.
INNOVATION PUSH
Wolfers reiterates that Australia is a lucky
country. Its economy is reactive to global
financial events, well diversified with high
value-added activities and a new emphasis
on innovation, all providing long-term opti-
mism in the business community.
Whats also exciting for the firm is the
Australian governments commitment to
boost innovation in the next four years
through a $1 billion initiative. The pro-
gramme includes promoting business-
based research and development, tax
breaks for investors and start-ups, and a
$200 million innovation fund to co-invest
in businesses.
As you move forward a generation,
what this agenda is effectively doing is seed-
ing the potential buyout candidates of the
future, Wolfers says. n

CONSOLIDATION IN HEALTHCARE
Desperately seeking scale
Willing buyers, an ageing population and a fragmented market make selective
healthcare assets highly prized by GPs who have the knowhow to take advantage.
Matthew Goodburn reports
With cities accounting for 80 percent of Aus-
tralias population and a government intent
on saving costs while improving quality, many
sub-sectors within healthcare remain highly
fragmented and ripe for consolidation, pro-
vided buyers can find assets of sufficient scale.
Many GPs first moved into the sector
around 2011 when valuations were consid-
erably lower, and have since benefited from
a willing IPO market. Quadrant Private
Equity exited Estia Health for A$1 billion
($720 million; 640 million) in 2014, TPG
and Carlyle exited HealthScope Hospitals via
IPO for A$4.5 billion and Ironbridge exited
Monash IVF in June 2014 for $523 million,
bringing A$6 billion of transactions into the
public markets in the space of six months.
PE firms holding Australian healthcare
assets have often picked the right moment
to sell and have done it very well, says
Jamie Palmer, a partner in law firm Allen
& Overys Sydney office.
HEALTH SERVICE Going forward, the nascent and frag-
PE investment in Australian mented state of many sub-sectors presents
healthcare companies opportunities for GPs prepared to roll up
their sleeves. Dental, skin cancer, GP clinics,
A$m 10 10 No
physiotherapy, behavioural health and day
hospitals are all in private equitys sights.
[These areas] are extremely fragmented
6 which can mean PE has to be willing to start
very small to build businesses, says Crescent
Capital partner Tim Martin. Crescent built
audiology clinic chain National Hearing Care
from 30 clinics to 150, including an expan-
500 309 233 sion into India, by the time of exit in 2010.
2013 2014 2015 Lower mid-market specialist The River-
Capital side Company is planning a similar rollout
Number of companies for Melbourne behavioural health specialist
Source: AVCAL
IPAR, which it acquired last July.
j u n e 2016 t he 2 0 1 6 aust ralia report
HEALTHCARE
Leveraging a global team which has com-
pleted 90 healthcare deals proved useful,
says Nick Speer, a partner in Riversides
Melbourne office.
What we often find is that trends in
parts of the healthcare industry in North
America and Europe have evolved ahead of
Australia so we can get a steer on how they
may play out here, including where growth
strategies have been successfully deployed.
IPAR is a market-leading case manage-
ment network that helps injured employees
get back to work and Riverside hopes to
consolidate its position in a market of more
than 130 players, says Speer.
Riverside is also eyeing the home-care
sector, but the number of opportunities
with sufficient scale to make a platform
investment is less than we would like at
this [stage], says Speer.
Martin agrees that scale is often an issue
for firms seeking consolidation plays.
There are not many healthcare com-
panies around that already have EBITDA
of $50 million-plus.You are often starting
with firms that have $5 million-$10 million
or less, so it needs a particular appetite and
capability set at the PE firm to build these
businesses to scale, he says.
Crescent has done that with National
Dental Care, National Home Doctor Ser-
vice and, most recently, skin cancer clinic
Sun Doctors.
[Sun Doctors is in] an exciting area.
Australia is unfortunately the global epi-
centre for skin cancer incidence and even
though patient awareness is high there is a
relatively undeveloped approach to screen-
ing and treatment, Martin says. n
13
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AGRIBUSINESS
Getting the beef
QIC has bought 80% of NAPCO, one of Australias largest
beef producers, on behalf of Australian and UK pensions.
Principal Phillip Cummins told PEI sister title Agri Investor
about its first investment into primary agriculture
Queensland: it took time to find NAPCO
How does this investment in primary
agriculture tie into your overall
strategy?
This has a 10-plus year horizon, and is not a
typical private equity investment; it's more
like what we have done in real estate and
infrastructure.Thats what some of our cli-
ents are looking to match in terms of assets
and liabilities.
Just owning land is not the way we
wanted to play food and agribusiness this
is ultimately an operational enterprise.We
have invested in some other food processing
and distribution businesses in the US and
Europe, but this is quite different in terms
of being a primary production investment.
Why did it take more than three
years to find the right agribusiness
for your clients?
Its not that that there isnt interest at super-
annuation funds, its just that the question
j u n e 2016
DIRECT INVESTING
is more about how you get exposure and
what exposure you are after. We were look-
ing for a platform of assets we could take
an enterprise and business-building per-
spective with, and that would enable us to
have scale. The big supers are looking for
investments they can put A$100 million-
plus into.
That hasnt been readily available. The
[primary beef] landscape in Australia
is extremely fragmented. Looking at the
groups who already have scale, one chal-
lenge is how you align yourself with those.
A lot of them dont need external capital,
so which ones are for sale and what type
of transaction is on the table? People have
different time horizons and different expec-
tations about how much control they are
willing to cede.
NAPCO is a great platform to build
upon.We can buy some individual or larger
NAPCO is a holdings to enhance our portfolio and we
were able to get scale immediately.
great platform
to build upon. How do you plan to take NAPCO
We can buy some forward?
This investment is about beef and we will be
individual or larger continuing to explore opportunities around
holdings to enhance the whole value chain. [NAPCO] provides
our portfolio and we us with a platform further down the value
chain, giving us a lot of room to take advan-
were able to get scale tage of where the industry is today.
immediately NAPCO doesnt have full coverage of
Phillip Cummins the value chain but is breeding through the
feedlot.We think that over the next decade
the breeding operation [will be] critical.
There is a lot of risk from climate and com-
modity pricing, so over time we also want
to de-commoditise our product to generate
better margins and move it further down
that value chain, building resistance into the
company to try and minimise price volatil-
ity at any point of that chain. n
t he 2 0 1 6 aust ralia report 15
 INDIA ROUNDTABLE
EXPERT
KEYNOTECOMMENTARY: GILBERT + TOBIN
INTERVIEW: ACTIS
AUSTRALIAN PE
Looking up down under
Fundraising and investment both grew strongly last year, but concerns remain over the
impact of new rules governing foreign investors, according to John Williamson-Noble
and Tim Gordon of law firm Gilbert + Tobin
The 2015 financial year was a strong one for
the Australian private equity market on the
investment and fundraising front, although
exits slowed down from their hot streak in
2013 and 2014.
Uncertainties, however, remain over the
impact of new rules governing overseas
investors at a time when foreign invest-
ment is soaring.
Investment activity was up 54 percent
year-on-year at A$3.3 billion ($2.4 billion;
2.1 billion) in the year ended 30 June
2015, according to the Australian Private
Equity and Venture Capital Association.
The average equity cheque written by funds
in Australia rose to A$36 million per invest-
ment, from A$26 million in FY2014.
Fundraising activity also showed nota-
ble growth, with nine funds successfully
recording interim or final closes in FY2015.
Much of the money was raised by larger
funds with strong track records and reputa-
tions, most notably Pacific Equity Partners
raising $2 billion and Crescent Capital Part-
ners raising $675 million for their respec-
tive fifth funds. Mercury Capital and Next
Capital both secured in the region of $300
million and Allegro $250 million.
At the lower end, growth/expansion
funds accounted for approximately $160
million which is a significant increase from
FY2014 in a space where fundraising has
been difficult in recent years. The combined
amount of capital raised for turnaround and
mezzanine funds was also the largest for
a decade.
One notable trend was the rise in the
proportion of foreign investors, espe-
cially those from Asia. Foreign investors
accounted for 70 percent of the capital
16
raised, with new commitments from Asian
investors increasing by 261 percent from
the previous year and accounting for 30
percent of all new PE commitments.
North American LPs also increased their
relative share from 16 percent in FY14 to
23 percent of funds raised in FY15.
The big question is just how this will be
affected by Australias new foreign invest-
ment rules (see below).
LOW EXIT LEVELS
Including VC sponsors, the total number
of companies exited by sponsors fell to 51,
compared with 70 in FY2014 and 68 in
FY2013.
In FY2015, PE trade sale exits fell to
their lowest levels since FY2009, with only
20 portfolio companies sold to trade buyers
through the year. These deals had an aggre-
gate deal value of only A$897 million, but
there were some strong exits towards the
end of calendar 2015.
For example, the emerging theme of
Chinese interest in Australian medical/
health assets was underlined in December
2015 by Archer Capitals sale of health ser-
vices provider Healthe Care to Luye Medi-
cal Group for A$938 million.
Private equity IPOs included Adairs,
Pepper Group, Baby Bunting Group and
the Link Group. The Link Group IPO, the
biggest in 2015, was backed by Private
Equity Partners and co-owners ICG and
Macquarie.
The solid return demonstrated that
equity capital markets remain an available
avenue for an exit, although we didnt see
the record numbers posted in the previ-
ous year.
private equity international june 2016
One area of capital markets that saw
a lot of activity was in funds exiting their
residual stakes in former investee compa-
nies that had listed in prior years. Follow-
ing the release of their stakes from escrow,
Pacific Equity Partners sold down their
shareholdings in both Spotless and Veda,
and Crescent Capital Partners exited
Cover-More. There were also large trades
by UBS and CVC (in Mantra) and TPG and
the Carlyle Group in Healthscope.
STRATEGIC STAKES
An interesting trend emerged in 2015
where private equity funds either made
a pre-bid or took strategic stakes in listed
companies without immediately making a
takeover offer. Funds in Australia have gen-
erally been reluctant to make an uncon-
ditional investment into a listed company
unless they are certain that they will gain
eventual control. In October 2015, Cres-
cent Capital Partners acquired an outright
stake of around 19 percent in listed engi-
neering services business Cardno. It wasnt
until later that Crescent made a successful
proportional takeover offer for the company.
Even that subsequent proportional bid was
a transaction structure designed to maintain
the listing of the target entity as opposed
to the more usual take-private approach.
October 2015 also saw KKR take a 10
percent stake in listed miner OZ Miner-
als. KKR never did make a formal takeover
proposal, ultimately exiting this stake for a
profit in March 2016.
These transactions were especially
interesting in the context of Pacific Equity
Partners divestment of its interest in ASX-
listed company EDL by way of a scheme of

Williamson-Noble: changes to what constitutes
a foreign government investor could hit
Australian GPs
arrangement under which DUET acquired
all the shares in EDL (including Pacific
Equity Partners shareholding of approxi-
mately 70 percent) for A$1.4 billion. This
deal was a hugely successful exit for Pacific
Equity Partners, despite it never having
actually taken EDL private after acquisition.
INNOVATIVE CONSORTIUMS
The last year has also seen some innovative
consortiums form to bid for large Austral-
ian assets.
In March 2016, Brookfield Infrastructure
(with its consortium partners GIC Private
Limited, British Columbia Investment Man-
agement Corporation and the Qatar Invest-
ment Authority) and Qube Holdings Limited
announced a binding agreement to acquire
Asciano Limited for around $9 billion, in
would be one of the largest deals in the last
five years. Brookfield and Qube had initially
led their own individual consortiums in a
series of competing bids for Asciano.
In February 2016, a consortium formed
between a group of Western Australian
farmers (AGC), ASX100 listed agribusi-
ness GrainCorp and fund manager HRL
Morrison & Co announced a proposal to
corporatise Australias largest co-operative
in what would be the largest transaction
in Australian agriculture for some time if
implemented.
j u n e 2016
EXPERT COMMENTARY:
Gordon: innovative consortiums have formed to
bid for large Australian assets
FOREIGN INVESTMENT CHANGES
Significant changes to Australias foreign
investment regime came into force on
1 December 2015.
Under the changes, approval from the
Foreign Investment Review Board (FIRB)
is required for foreign investors that acquire
at least 20 percent of any Australian busi-
ness that has total assets valued at least
A$252 million, up from 15 percent pre-
viously.
There is a higher threshold of A$1.094
billion for acquisitions (outside sensitive
industries) by US, NZ, South Korean, Japa-
nese, Chilean and Chinese non-governmen-
tal investors. But these higher thresholds are
often unavailable to PE funds from these
jurisdictions if there is an interposed
entity operating outside these jurisdictions.
Other changes include:
new (and substantial) fees on all foreign
investment applications;
$25,000 for business and corporation
acquisitions including agribusiness
acquisitions (less than $1 billion); and
$100,000 for business and corpo-
ration acquisitions including agri-
business acquisitions ($1 billion or
more);
new penalties aimed at ensuring com-
pliance with foreign investment rules
(including criminal offences); and
t he 2 0 1 6 aust ralia report
INDIA
ROUNDTABLE
GILBERT + TOBIN
a new definition of agribusiness and a
$55 million threshold for investments in
agribusinesses.
On 22 February 2016, the Australian
Treasury announced that FIRB approvals
would be subject to additional conditions
aimed at tax compliance. The new condi-
tions include undertakings to comply with
tax laws, provide full disclosure about tax
planning, pay tax debts, and for high risk
transactions, requires compulsory tax clear-
ances from the tax authority.
There were also changes to what consti-
tutes a foreign government investor which
could have unfortunate consequences for
Australian GPs. An entity that is deemed
to be a foreign government investor must
notify FIRB before it acquires any direct
interest (a term that has a broad meaning)
in an Australian entity or business.
This is a real problem for Australian fund
managers who can easily fall into this clas-
sification because of an (entirely passive)
LP investment from state pension funds
that come under the government investor
definition. By way of example, if two US
pension funds comprise more than 20%
of the funds invested in an Australian fund
then the fund is treated for all purposes as
a foreign government investor, regardless
of it having an Australian based investment
committee and executive team. This has the
absurd consequence that even an acquisition
of a bolt-on business for $1 would require
approval from the FIRB and the payment
of a $25,000 fee.
This is manifestly not related to the
legislative intent of the foreign govern-
ment investor regime which was designed
to scrutinise strategic foreign government
investments in Australia. It is also a barrier
to successful local PE investment in Aus-
tralia, not to mention exits by Australian
business owners. The changes are currently
undergoing consultation. The government
is considering potential solutions so it is
hoped that this situation will be remedied
soon. n
17
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AGRICULTURE
Inside the S Kidman sale process
The cattle empires managing director Greg Campbell
tells Clare Pennington, editor of PEI sister title Agri Investor,
of his frustration with the latest decision to block the sale
Beast of burden: large agriculture deals can hit obstacles
At the end of April, just a few months
before an election, Australian Treasurer
Scott Morrison announced his preliminary
decision to reject the Chinese-led A$371
million ($270 million; 240 million) bid
for the S Kidman cattle business, Australias
biggest landholder. It was the second time
he has blocked its sale.
Kidman managing director Greg Camp-
bell told Private Equity International that
Chinese investments public unpopular-
ity is at the heart of the treasurers deci-
sion to block the sale, citing controversy
around Chinese purchases of Sydney and
Melbourne properties.
Kidmans preferred bidder was a con-
sortium, 80 percent led by Chinese-owned
Dakang Australia.
Despite the Kidman farm assets being
operated as term leases, rented from state
governments on 30- to 42-year terms
the general public failed to distinguish the
difference [from freehold] residential real
estate, Campbell said.
Crucially, Campbell said there was a
j u n e 2016
precedent for the sale of large Australian
farms to foreigners: UK-based Terra Fir-
mas purchase of the Consolidated Pasto-
ral Company (CPC) and its 57,000 square
kilometres, in 2009. He added that after
the treasurer first blocked Kidmans sale
to Chinese interests in November, Kidman
removed the militarily sensitive Anna Creek
Station from the sale, reducing the portfolio
by 24 percent to 77,000 square kilometres.
The re-application was considered
by informed industry observers to be gen-
erally similar to the previously approved
CPC purchase and therefore likely to be
approved, he said.
If the treasurer was truly convinced that
the large land area denied a buying oppor-
tunity for Australians, he could have ruled
against the foreign buyers in December.
Instead, the foreign buyers were
engaged in a protracted series of requests
for further information on their business
structures, required to make or accept
commitments on tax, employment [and]
further investment.
t he 2 0 1 6 aust ralia report
ANALYSIS
Campbell said that in late March the
treasurer asked Kidman to indicate a pre-
ferred bidder: This request was counter
to the sale process which had been agreed
with the treasurer's office in July 2015,
where it was agreed the Foreign Investment
Review Board and the treasurer would con-
sider and rule on up to eight applications
from foreign bidders so that the final auc-
tion period of the sale could be run with
approved buyers for the business.
Campbell said this selection of a single
buyer arguably restricted the final price.
PEI has been unable to confirm details
with the Foreign Investment Review Board,
but outside investors said the review
appeared disorganised.
Campbell was frustrated, he said, by
repeated requests to extend review dead-
lines. When the bidders refused an exten-
sion in mid-April, the treasurer imple-
mented a 90-day stay-of-execution clause
and initiated an independent inquiry.
Within a few days, Kidman and its sales
team were asked to meet inquiry lead
Graeme Samuels in Adelaide on 26 April,
despite key people being unable to attend at
short notice. I was in the remote parts of
the Northern Territory and had to drive 200
kilometres to [find] cell-phone coverage to
attend the teleconference, which lasted 1.5
hours, Campbell added.
Morrison revealed his provisional no on
29 April, suggesting Kidman further break
up its portfolio.
Campbell said it will seek buyers backed
by New Zealand or the US, but by splitting
its assets, Kidman could miss out on the 15
percent premium its size commands. His
final recommendation? A foreign investor
requiring approval for a large agricultural
deal [should] not apply for the Australian
treasurers approval within 12 months of
an Australian election. n
19
 LP WATCHLIST

Wish you were here

Australias most active LPs have made more than 60 commitments to funds
since 2010. Here are six who should top any GPs list of potential investors to visit

1 US SELECT PRIVATE OPPORTUNITIES FUND

The US Select Private Opportunities Fund is an Australia-based man-
aged investment scheme. Focusing on the small to mid-market segment,
the fund provides investors with access to a family office style of investing in
privately held investments predominantly held in the US. Sectors it invests in
include manufacturing, consumer products and services, business services
and healthcare.
2 Dixon Advisory
Founded by Daryl Dixon in 1986, Dixon Advisory is an Australia-based
financial advisory firm. The firm helps more than 15,000 families with their
finances including 4,000 self-managed super funds (SMSFs) with $4 bil-
lion in assets. In June 2012, Dixon Advisory formed the US Select Private
Opportunities Fund with Cordish Private Venture. The fund is a fund of funds
listed on the Australian Securities Exchange.

Recent fund investments Recent fund investments

FUND NAME YEAR FUND SIZE FUND NAME YEAR FUND SIZE
Tower Arch Partners I 2014 $272m Trive Capital Fund I 2013 $300m
Blue Point Capital Partners III 2013 $425m Tengram Capital Partners Gen2 Fund 2013 $173m
High Road Capital Partners Fund II 2013 $320m TriVest Fund V 2012 $415m

FUND STRATEGIES FUND STRATEGIES

Buyout / Corporate Private Equity, Venture Capital / Growth Equity Buyout / Corporate Private Equity, Other

REGIONS REGIONS
North America North America

SECTORS INVESTED IN SECTORS INVESTED IN

Retail, Manufacturing, TMT, Healthcare, Consumer Goods, Business Retail, Manufacturing, Healthcare, Consumer Goods, Diversified
Services, Diversified

SYDNEY 3 Macquarie Group

Founded in 1970 and based in Sydney, Macquarie Group is an inde-
pendent asset management institution and investment bank that manages
specialist funds, owning assets in infrastructure, real estate, private equity
and development capital. It is an investor in third-party managed unlisted
buyout, venture capital as well as growth and expansion capital funds.
These funds are focused predominantly on Asia-Pacific, North America
and Western Europe.

Recent fund investments

FUND NAME YEAR FUND SIZE
2
1 Mayfair Equity Partners I 2015 200m
Anchorage Capital Partners II 2012 A$250m
Braemar Energy Ventures III 2011 $300m

FUND STRATEGIES
Buyout / Corporate Private Equity, Secondaries, Distressed / Turnaround,
Venture Capital / Growth Equity, Other

REGIONS
North America, Western Europe, Central/Eastern Europe, Middle East/
Africa, Asia-Pacific, Latin America
3
SECTORS INVESTED IN
Energy / Oil & Gas, Biotech / Life Science, Clean Tech / Renewable,
Retail, Manufacturing, TMT, Healthcare, Consumer Goods,
Diversified

20 private equity international june 2016

 LP WATCHLIST

4 HOSTPLUS
Founded in 1987, HOSTPLUS is the national superannuation fund for
the Australian hospitality, tourism, recreation and sport industries. One of
MELBOURNE

the largest super funds in Australia with one million members, over 90,000
employers and $16 billion in funds under management, it currently invests
5 percent of its assets in private equity. HOSTPLUS works closely with JANA
Investment Advisers on all investing opportunities. It predominantly invests
in Australia-focused funds of funds but has also targeted the US, Europe
and Asia.

Recent fund investments 5

FUND NAME YEAR FUND SIZE
4
Medical Research Commercialisation Fund 3 2015 A$200m
Blackbird Venture Capital Fund II 2015 A$200m
Partners Group Direct Investments 2012 2012 1.50bn

FUND STRATEGIES
Buyout / Corporate Private Equity, Fund of Funds / Co-Investment, CANBERRA
Mezzanine / Debt, Secondaries, Other

REGIONS
North America, Western Europe, Central/Eastern Europe,
Asia-Pacific

SECTORS INVESTED IN 6
Energy / Oil & Gas, Biotech / Life Science, Financial Services, TMT,
Healthcare, Industrials, Diversified

5 HESTA SUPER FUND

HESTA is the national industry superannuation fund operating for people
in the Australian health and community services industries and serving more
than 500,000 members and 30,000 employers. Its allocation to private equity
investments has grown to 4.9 percent since it made its original investment
6 AusIndustry (Innovation Investment Fund)
This Australian Government business programme supports industry,
research and innovation and has received more than A$2.94 billion in funding
in 1999 and includes investments across Asia Pacific, Europe and North across all its programmes. The Innovation Investment Fund (IIF) is one of its
America. In January 2012, the superannuation fund announced that it would venture capital programmes which invests into fund managers seeking to
remove tobacco investments from its portfolio. raise venture capital funds, and received a further A$350 million funding
boost in 2013.
Recent fund investments
FUND NAME YEAR FUND SIZE Recent fund investments
Medical Research Commercialisation Fund 3 2015 A$200m FUND NAME YEAR FUND SIZE
TDR Capital III 2013 2bn MHC&C Vivant Ventures Accelerator Fund 2013 A$40m
Olympus Growth Fund VI 2013 $2.3bn Southern Cross Innovation Investment Fund 2011 A$40m
Carnegie Innovation Fund 2010 $170m
FUND STRATEGIES
Buyout / Corporate Private Equity, Fund of Funds/Co-Investment, FUND STRATEGIES
Secondaries, Venture Capital / Growth Equity Venture Capital / Growth Equity, Other

REGIONS REGIONS
North America, Western Europe, Central/Eastern Europe, Asia-Pacific Asia-Pacific

SECTORS INVESTED IN SECTORS INVESTED IN

Biotech / Life Science, Clean Tech / Renewable, Natural Resources, Biotech / Life Science, Clean Tech / Renewable, TMT, Healthcare
Financial Services, Transport, TMT, Healthcare, Consumer Goods,
Source: PEI Research & Analytics.
Diversified For more information visit www.privateequityinternational.com/data

j u n e 2016 t he 2 0 1 6 aust ralia report 21

DATA ROOM

Australia by the numbers

From funds raised to targets met (and missed), PEI Research & Analytics
offers a snapshot of the country's private equity industry

DOMESTIC TRENDS GROWTH PLAN

Fundraising by vehicles headquartered Average size of Australia-focused funds

in Australia
$bn No
$bn No 6
12
5 5 5 5 5

9
8 8

6
6 6
5 2

1
5.2 0.9 4.4 3.9 2.1 0.9 5.7 2.1 1.0 39.8 114.3 161.3 82.8 349.9 1.4 307.7 656.8
2008 2009 2010 2011 2012 2013 2014 2015
2008 2009 2010 2011 2012 2013 2014 2015 YTD
Total capital raised ($bn) 2016 Average size of funds

Number of funds Number of funds

Source: PEI Research & Analytics Source: PEI Research & Analytics

TAKING AIM BEATING TARGETS

Proportion of Australia-focused funds which Amount raised by Australia-focused funds

met their target size compared with targets
% $m
100

678.4
20 20
80

377.6
60
50 50

60
40 78.0
0
80 60 80 60
20 -51.2
-158.2
20 50 20 20 40 100 20 50 -292.1 -189.8
0
2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015

Below Target
On Target
Above Target

Source: PEI Research & Analytics Source: PEI Research & Analytics

22 private equity international june 2016

 DATA ROOM

IN THE FAST LANE GOING IT ALONE

Time spent on the road for Australia- Fundraising by purely Australia-focused funds
headquartered vs Australia-focused funds vs funds with Australia as part of wider remit
since 2008 $bn

%
60

50

40

30

20

10 0.2 4.1 0.2 0.6 0.8 7.6 0.4 1.9 1.7 4.6 0.0 1.6 1.5 2.3 3.9 4.0

44 53 12 20 20 14 20 0 4 13 2008 2009 2010 2011 2012 2013 2014 2015

0
0-6 months 7-12 months 13-18 months 19-24 months >24 months Funds focused on Australia
Australia-headquartered Funds with focus on Australia as part of wider remit
Australia-focused
Source: PEI Research & Analytics Source: PEI Research & Analytics

STRATEGIC DIRECTION HOME GROWN TOP TECH

Focus of Australia- Nearly 80% of all Australia- Where Australian-based

headquartered funds focused funds are raised by sector-specific funds are
since 2008 local managers aiming their capital

3% 8%
8%
18% 8%

34 Australia- $2.42bn
28% focused funds total capital 46%
closed since since 2008
64% 2008

38%
79%

Buyout / Corporate Private Equity Australia TMT

Venture Capital / Growth Equity North America Natural Resources
Others Europe Biotech / Life Science
Clean Tech / Renewable

Source: PEI Research & Analytics Source: PEI Research & Analytics Source: PEI Research & Analytics

j u n e 2016 t he 2 0 1 6 aust ralia report 23

 CAPITAL WATCH

Funds in market
PEI Research & Analytics puts the spotlight on some of Australias key vehicles

AUSTRALIA-HEADQUARTERED FUNDS CURRENTLY IN MARKET

FUND NAME FUND MANAGER TARGET YEAR FUND FUND SECTOR
SIZE ($M) OPEN STRATEGY

Medical Research Future Fund Australia Future Fund 14590.70 2015 Venture Capital / Growth Equity Healthcare

Champ IV Fund CHAMP Private Equity 1094.30 2015 Buyout / Corporate Private Equity Diversified

Blue Sky Strategic Australian Agriculture Fund Blue Sky Alternative Investments 218.86 2015 Venture Capital / Growth Equity Agribusiness

Next Capital III Next Capital 218.86 2013 Buyout / Corporate Private Equity Diversified

Australia VC Fund III Blue Sky Alternative Investments 145.91 2015 Venture Capital / Growth Equity TMT

OneVentures Innovation Fund II OneVentures 100.00 2014 Venture Capital / Growth Equity Diversified

AirTree Ventures Fund II AirTree Ventures 72.95 2016 Venture Capital / Growth Equity TMT

Reinventure Fund II Reinventure Group 72.95 2016 Venture Capital / Growth Equity Diversified

Digital Accelerator LP Adventure Capital 58.36 2012 Venture Capital / Growth Equity TMT

MHC&C Vivant Ventures Accelerator Fund M.H. Carnegie & Co. (MHC&C) 58.36 2013 Venture Capital / Growth Equity TMT

Sapien Ventures Fund Sapien Ventures 36.48 2015 Venture Capital / Growth Equity TMT

Future Capital Bitcoin Fund Future Capital 30.00 2014 Venture Capital / Growth Equity Diversified

Australia VC Fund II (VC 2014) Blue Sky Alternative Investments 21.89 2014 Venture Capital / Growth Equity Diversified

BlueChilli Venture Fund BlueChilli 10.00 2013 Venture Capital / Growth Equity TMT

iAccelerate start-up incubator fund Artesian Capital Management 7.30 2014 Venture Capital / Growth Equity TMT

Slingshot Venture Fund Artesian Capital Management 7.30 2013 Venture Capital / Growth Equity TMT

Sydney Seed Fund Sydney Seed Fund 1.46 2013 Venture Capital / Growth Equity TMT

Pacific Equity Partners V - Co-investment Pacific Equity Partners 0.73 2013 Fund of Funds / Co-Investment Diversified

MEDICAL RESEARCH FUTURE FUND
Established in January 2015, the Medi-
cal Research Future Fund (MRFF) is
managed by Future Fund, Australias
A$117 billion ($87.6 billion; 76.1
billion) sovereign wealth fund.
The MRFF has a target size of A$20
billion by 2020 the largest fund of
its kind in the world and aims to have
around A$1 billion to spend every year
on new medical research projects. The
fund will also support partnerships
between researchers, healthcare pro-
fessionals and the community.
In its portfolio update in March, the
MRFF was valued at A$3.1 billion as of
31 March, with 8 percent distributed
to private equity.
CHAMP IV
Launched last year, Champ IV is the
fourth fund from Australia-focused
CHAMP Private Equity.
The fund will invest in mid-market buy-
outs in Australasia with an enterprise
value of A$150 million-A$750 million
as well as cross-border transactions
with a compelling Australian pres-
ence.
The size is similar to its A$1.48 billion
predecessor, a 2009 vintage, which it is
continuing to invest, but the firm could
collect commitments upwards of that
figure.
BLUE SKY STRATEGIC AGRI FUND
Australias Blue Sky Alternative Invest-
ments launched the Blue Sky Strategic
Australian Agriculture Fund in April
2015, targeting the local superannua-
tion industry to invest in mid-tier agri
infrastructure, agribusiness private
equity and water entitlements.
The ASX-listed firm also has direct
investments in private equity, real
estate, infrastructure, hedge funds,
venture capital and other real assets,
such as water infrastructure.
Blue Sky is planning to launch a second
private equity fund later in 2016 target-
ing A$200 million-A$250 million. The
firms first fund was a 2010-vehicle that
raised A$30 million. n

24 private equity international june 2016

 Available as an eBook

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