The Victorian government will make equity investments in local companies through a new $250 million growth fund which closely mirrors a similar initiative to be launched soon by the federal government.
The Victorian Business Growth Fund marks a significant shift in policy from the state government, which has mostly steered clear from direct investments in companies, instead funding the surrounding infrastructure and organisations, mainly through LaunchVic.
The fund will be managed independently by Roc Partners, with the state government not involved in any of the investment decisions. The Victorian government will be contributing $50 million to the fund, with First State Super stumping up $200 million.
It will take equity or debt in each company rather than providing grants, with a focus on “long-term growth opportunities”.
“This is a Victorian-first program that finds a new way of backing our local businesses to become bigger and better. We know access to capital is often a handbrake on growth – we’re fixing that,” Victorian treasurer Tim Pallas said.
“As we continue to recover from this crisis, we’ll continue to pursue more opportunities to work closely with the private sector to grow the economy.”
The fund is very similar to an initiative by the federal government. The $540 million Australian Business Growth Fund will provide “patient capital” to SMEs around the country, with $100 million in Commonwealth funds, $100 million from each of the big four banks and $20 million each from HSBC and Macquarie Group.
The Victorian version of the fund is ready to invest now, while the federal growth fund is still before Parliament and not in operation yet. It is understood that once both funds are up and running and making investments, efforts will be made to ensure they complement each other rather than compete for companies.
The Victorian fund will invest in companies with a “compelling growth opportunity to Victoria”, whether through being based in the state, expanding to Victoria or creating jobs or capital locally.
To be eligible for the fund, companies will need to have annual revenue of between $5 million and $100 million, no more than $250 million in assets and have, or expected to soon have, positive cash flow.
Similarly, the Commonwealth business growth fund will target companies with annual revenue of between $2 million and $100 million, with three years of revenue growth and profitability. It will take equity stakes of 10 to 40 per cent in each company through investments of between $5 and $15 million.
Legislation facilitating the Commonwealth’s investment in the fund is still yet to pass Parliament, despite plans for it to be up and running next month. Former Tasmanian premier Will Hodgman has been appointed to lead the new fund.
The federal government has not made this legislation a priority during the last sitting fortnight, with the bill needing to pass for the $100 million in Commonwealth funds to be made available. The federal fund was first announced during last year’s election campaign.
The Victorian government’s fund will be governed by an investment mandate decided by it and First State Super, while Roc Partners will be responsible for all the investment decisions. It will look for a commercial return, and provide “strategic insights, expertise and commercial experience” to its portfolio companies.
First State Super ran a competitive process to select the fund manager, with Roc Partners to now significantly expand its presence in Melbourne, with a permanent office in the city and a number of new hires.
Roc Partners was bought out from Macquarie Funds Group in 2014 after previously being known as Macquarie Investment Management Private Markets. The firm has offices in Melbourne, Sydney, Shanghai and Hong Kong.
Both business growth funds are being spun as key elements to help businesses emerge from the COVID-19 pandemic.
The Victorian government has previously opted to not directly fund companies and take equity in them, instead looking to provide cash for the infrastructure around these companies, mainly through LaunchVic, which was created in 2016.
The independent agency’s initial $60 million in funding came to an end last year. It was provided a further $10 million for this financial year to continue operations, with discussions underway into its long-term operations.
This $10 million in funding is set to run dry at the end of this financial year, but the state budget has been pushed back to later this year due to the ongoing pandemic.
LaunchVic will work with the Victorian Business Growth Fund and will refer its stakeholders and businesses to register interest with it.