Having withstood turbulent global conditions, and outperformed international peers on key return and fundraising metrics, Australian private capital funds remain an attractive market for international investors despite significant global headwinds and uncertainty.
According to the 2025 edition of the Australian Private Capital Yearbook, Australian private capital funds have one of the lowest risk profiles globally measured by dispersion in net internal rate of return (IRR) between funds.
Measured by median net IRR, the overall profitability of Australia-focused private capital funds is higher (13.8%) than funds focused on North America (12.4%), Europe (12.0%), and Rest of the world (9.8%).
Assets under management (AUM) remained relatively static at $139 billion as of September 2024, with Australia-focused private equity, venture capital, and private credit funds accounting for nearly half of this at $65 billion.
In the nine months to September, venture capital AUM grew by 7%, reaching $17 billion.
Fundraising resilience
The Australian Investment Council (AIC) CEO Navleen Prasad noted that private capital fundraising held up better in Australia than all other regions except Europe, declining by 14% year on year to $13 billion in 2024 while North America and Asia contracted by 26% and 49%, respectively.
“There are obvious challenges around liquidity and regulatory pressure, which are not unique to Australia, but overall, the prognosis for LPs and GPs in Australia is encouraging,” said Prasad.
In layman's terms, GPs (General Partners) are the fund managers who lead and operate the private equity fund, while LPs (Limited Partners) are the institutional investors who provide capital to the fund.
Preqin’s Global Head of Research Insights Cameron Joyce attributes the evolution of Australia’s private capital investor base to growing demand from non-institutional investors.
To cater for this growing demand new products have come on stream, including open-ended structures.
“Amid significant volatility in public markets in 2025, investors continue to look to private capital as an effective way to gain exposure to long-term investment trends,” said Joyce.
Capital returns
The five-year median distributed paid-in capital (DPI) – a metric measuring capital returned to investors – came in at 0.39x for Australia-focused private equity funds with a 2019 vintage, outperforming global private equity funds of the same vintage (0.18x).
Institutional investors, including super funds, accounted for over three-quarters (76%) of commitments to Australia-focused private capital 2022–2024 vintage funds.
However, private wealth investors’ share of commitments has increased to 24% for 2022–2024 vintage funds, up from 8% for 2016–2018 vintages.
Fewer fund closures
Interestingly, the report suggests the number of private capital funds closed globally was less than half that of 2021, falling almost a quarter year-on-year to the lowest total since 2014.
Meanwhile, the report also suggests private credit has become an attractive asset class among global private wealth investors due to its "floating rate" properties in a high-interest rate environment.
Unsurprisingly, managers are increasingly creating open-ended private credit funds to target Australian investors.
The open-ended private credit market is said to be 10 times larger than the closed-end market, which stood at $2.7 billion as of September 2024 - excluding private lending to property developers, which currently stands at $10 billion in AUM.
Overall, Preqin attributes sluggish [fund] growth to a global slowdown in fundraising and deal-making, plus falling asset valuations.
Local investors homeward looking
However, the report found that investors from both Australia and NZ, plus Asia are shifting their investments to home, as Australia-domiciled funds continue to "evolve".
"Investors from ANZ continued to make up the majority of investors in Australia-based funds, increasing from 49% for funds of vintages 2015-2019 to 54% of investors in funds of vintages 2020-2024," the report said.
"In the same vintage periods, the proportion of Asia-based investors rose from 5% to 10%."
Meanwhile, the VC sector has bounced back 7% to $17 billion in AUM, seeing an increase in both dry powder – aka the unspent, uncommitted capital held by a fund - and unrealised value in the same period.
Real estate and infrastructure AUM were, however, negatively impacted by macroeconomic conditions, decreasing by 5.2% and 7.9%, respectively.
