Surfeit of money curbs private equity investment

Exploratory research conducted by CPA Australia has revealed why superannuation funds are reluctant to invest in private equity.

According to the research, the major deterrent to investing in private equity is the level of competition between private equity funds for quality deals in the market.

The research, conducted for CPA Australia by lecturer in finance at the University of Western Sydney, Sacha Vidler, and the Australian Consumers’ Association senior policy officer, financial markets, Nick Coates, said there was often a concern that the private equity space could be a victim of its own success and that there could often be too much money chasing too few deals.

It said other deterrents included the low level of liquidity and the long maturity of private equity investments, with superannuation funds being put off by having to leave money in private equity for seven to 10 years.

Commenting on the survey findings, CPA Australia technical adviser, business management, David Fox said by understanding why superannuation funds chose not to invest in private equity companies moved closer to overcoming the barriers to such investments.

“This research will help equity groups understand how superannuation funds make their investment decisions and help them reassure superannuation funds of the good returns that private equity can bring,” he said.