FY24: A year in review
Reflections from our CEO
In many respects, the contours of FY24 mirrored those of the year before it, albeit with a growing sense that we are at a turning point in monetary conditions. The Australian economy continued to face challenges with difficult macroeconomic headwinds, high interest rates, persistent inflation, and geopolitical uncertainty. Despite this, Australian SMEs have demonstrated remarkable resilience, with many capitalising on opportunities to innovate and strengthen their market positions, showcasing their ability to thrive even in challenging times.
We witnessed (again) significant developments in AI technology, intensified debates around renewable energy, and the added unpredictability of a substantial portion of the world’s population heading to the polls. The pace at which businesses must respond to these challenges is accelerating. Once, the long tail of business disruptions could be measured in years; now, they unfold over mere months. For many Australian businesses, strategic choices lie ahead as they navigate an environment that is both familiar and unprecedented.
Much has already been said about the record amounts of unallocated private capital in Australia. While sentiment among Australian dealmakers remains positive, this has not yet translated into increased merger and acquisition (M&A) activities. However, following a two-year decline, we expect dealmaking to pick up when monetary policies ease and the economic outlook improves. While this recovery may extend into 2025, it is a question of when, not if.
Based on these macroeconomic undercurrents, we saw a couple of notable changes in the demand for growth capital. First, demand from retail businesses for investment declined sharply, while demand surged from businesses in the utilities, healthcare, and professional/business services sectors – a reflection of the uneven impact the economic environment is having on different sectors. Second, a material change emerged with more founders wanting to take money off the table through a partial sell-down of shares to a minority investor. This approach allows founders to secure immediate financial benefit while maintaining the potential for significant financial gains in the future success of the business.
Our investment strategy has always been hands-on, offering more than just capital to our portfolio companies. Throughout the year, we worked closely with our portfolio, guiding their strategic direction, actively supporting M&A, and strengthening board governance. Our collaboration resulted in tangible leadership outcomes, such as the appointment of five new independent chairs and the expansion of executive teams. Our active investment approach contributed to significant commercial milestones across our portfolio, including successful entry into new overseas markets, and record-breaking sales results.
Over the past year, we’ve made meaningful strides in diversity and inclusion within our own Fund, as demonstrated by the promotion of three talented women in our investment team. This progress reflects our broader efforts to embed diversity at every level, ensuring we continue to unlock new perspectives and opportunities for growth.
In terms of the outlook, the economy is poised to enter a period of gradual quantitative easing, with heightened risk of recession in the US leading the Federal Reserve to signal a bias towards easing interest rates. We are seeing elevated volatility in global equity markets, continuing government deficit spending, ongoing pressures on energy and food prices, housing affordability and instability in the geopolitical environment.
Despite these pressures, there are real pockets of opportunity in the Australian economy – whether it’s the energy transition, major infrastructure spending, restructuring of global supply chains and re-onshoring of sovereign manufacturing capability, defence spending, tourism or resources – there are plenty of innovative Australian SMEs looking to take advantage of these opportunities that need capital to unlock growth.
As Oscar Wilde wisely observed, only a pessimist complains about the noise when opportunity knocks. With this in mind, we will continue to welcome introductions to ambitious Australian businesses that are innovating, disrupting the status quo, and contributing to our nation’s prosperity.
Anthony Healy
CEO and Managing Director
