Private Capital Pulse: Intro

Transcript Intro Episode

Hello. One of the biggest stories in global markets in recent times has been the stellar growth of private capital investing. Now measured in the trillions, private markets dominate as investors chase higher yields and alternatives to public holdings.

I'm Jon Ireland, a corporate funds partner at DLA Piper based in Sydney. DLA Piper's global capability and local knowledge gives us unique access to all the key markets. Leaning on our leading corporate M&A and investment funds capability globally, we achieve exceptional results for our clients most ambitious plans.

You're listening to a new private capital series brought to you by DLA Piper Australia. This private capital series will be unpacking the latest trends and analysis in private capital markets through a series of bite sized interviews. We'll be diving into some of the latest issues impacting investors and their investments. Looking at this from multiple perspectives and leveraging leading market insights from our DLA Piper Australia experts and also colleagues overseas. So, whether you're an investor sponsor or a service provider or more generally just interested in private markets, this private capital series from DLA Piper is for you.

Now we'll soon be launching the first of our series. And so to help me set the scene is our DLA Piper Australian Head of Corporate, Shane Bilardi. Shane, it's great to have you with us. Shane is a leading M&A expert. He practises regularly in M&A joint ventures and equity raisings for both public and private companies, but with particular expertise in the private market space.

And so, Shane, it's wonderful to have you with us for this introductory episode. And just firstly, could you please help us set the scene by explaining what we mean by private markets? Sure. Thanks for having me, Jon. I'm very excited about our new private capital series that you're hosting for DLA Piper.

Well, private capital in its broadest sense would be investments into assets not accessed via the public markets. But typically when we're referring to private capital, we're talking about institutional investors into those private capital assets, often structured through funds or other investment platforms. But it can also involve or extend to family offices and sometimes also to high net worth individuals investing directly in those assets as well.

Once upon a time if we're talking about private capital, we were probably referring to private equity. In fact the term private capital probably evolved after private equity and then venture capital as well. But it has broadened out to substantially more asset classes over time and it seems to be gathering pace more recently. So beyond private equity and venture capital, it now includes infrastructure, energy, more recent times private debt has been in there, real estate and agri assets and other natural resources as well. And it's shows no signs of slowing. Infrastructure would be thought of as a relatively mature private capital asset class now, but BlackRock's recent investment into GIP for AUD12.5 billion shows you that the appetite for that asset class, the infrastructure asset class, is only going to continue. And we expect to see the same across those other asset classes attracting private capital as well.

So we've seen clearly a broadening out of the asset classes. But what is it particularly about the scale and the performance of the private markets that we really should be focusing on?

Look, there's been the headwinds over the last decade or so of slower global economy, then we've had persistent inflationary pressures more recently and as a response to that, we've seen higher interest rates or at least you know in some senses a normalisation of the depressed interest rates that were there after the global financial crisis. And throughout that private capital markets have proved remarkably resilient. And that resilience has proved attractive to a range of institutional investors looking to diversify away from what had historically been and continues to be perhaps their largest set of investments in listed markets.

So family offices, sovereign wealth funds and public pension funds have all increased their participation in the private capital market looking for that diversification opportunity. This is also though facilitated access to newer investment opportunities like tech and AI, as well as hooking into energy transition and digital infrastructure to support that broader tech market. And those are investments that weren't always a good fit for that public market space where there's a certain type of structure to those investments.

More recently, we've also had the tailwind with a section of investors looking to target specific sustainable investment profiles to suit their own emerging climate and other ESG commitments and that has some way to play out as well. In terms of, I guess, a bit more of a broader scene setter for the series. What are you seeing in terms of the macro themes coming out of the private market space?

Yes, well, partly the reason for the series is that we think the shift away from public markets to private capital is a persistent one that will continue for the foreseeable future. It's not to say we won't see a rebound in IPO's. It's not that the public markets are dead by any stretch of the imagination. But if we're talking about relative growth rates, we expect private capital markets to continue to outstrip public markets in terms of those growth rates for the foreseeable future.

We also think that what this leads to is significantly more complexity over time in the private capital space. It's already quite complex the way the transactions are structured and greater regulatory invention as we move through the secondary wave and into tertiary transactions and beyond. And we've already started to see the start of that. We've seen some tax changes relating to private capital transactions as they try to ensure that we're not leaking revenue from the Australian tax base. We've seen some foreign investment changes relating to private capital investments, and we're already seeing some flagged changes from the government about how they'll categorise sophisticated investors, which does have an impact on those private capital transactions as well. And so we think that will continue to play out as well.

Examples of some of the other issues that come out of this, ones we saw last year, the carrying value of tech stocks with no real mark-to-market mechanism. Now that played out in a relatively orderly fashion last year, but it was uncomfortable for some time as people didn't know how to assess the carrying value of those assets. Another area is a lack of liquidity. We used to have a sort of cycle of being a private asset, public market so a listing that created some liquidity and then potentially that return to the private market for restructuring or for some other reason. But increasingly these private capital assets are being owned by a series of private capital investors and so the same liquidity isn't there for some of the investors, particularly some of the smaller ones.

So that's part of the point of this series, is we want to look at those ongoing developments, some of those themes, some of those trends. Look over the horizon at what might be coming in this space and do that both locally and globally drawing on our strong international network.

Terrific, well there you have it. Thanks Shane. A terrific opener, much appreciated. And important to mention and emphasise there that this series is specifically designed to keep you updated on all the latest developments in the private capital universe. So please do let us know if there's a particular topic you'd like to hear about, feel free to e-mail me at jon.ireland@dlapiper.com.

There's also contact details in the notes to the episode, so stay tuned for future insights. You can catch us on your Spotify or Apple podcast account, or alternatively search up the Private Capital series on our website at dlapiper.com.

Thank you for listening.