The ‘messy’ mid-market is Australia’s economic engine room

The Inside Adviser
18 August 2025
Omar Khan, Head of Wholesale Capital

When it comes to non-real-estate equity investing, most investors focus on the narrow universe of Australian Securities Exchange (ASX)-listed companies. This is despite 99 per cent of Australian businesses being privately held; and almost 60 per cent of the ASX’s market capitalisation being concentrated in the mining, financial services and property sectors – a reflection of our traditional economy.

By narrow-casting their investment universe the majority of investors are overlooking the the thousands of high-quality, highly profitable local businesses. These are the companies that are inventing, building, and delivering leading products and services right here in Australia, and many are already taking on global competitors.

Some investment funds have adopted a more sophisticated approach. Internationally, the Yale University endowment fund allocates more than 38 per cent of its assets to private equity and venture capital, and locally, Australia’s Future Fund has allocated more than 10 per cent to global and domestic private equity investments.

By contrast, many Australian-advised clients would have an allocation of 5 per cent, or even less. This is typically due to a lack of suitable and accessible products, although this dynamic has shifted in recent years as private equity funds recognise the advantages of designing and deploying products that meet the preferences of advisers and their investors.

Why Australian private equity deserves more attention

For those willing to step off the well-trodden path of ASX investing, Australian private equity presents a compelling opportunity to capture meaningful returns from both emerging and established private companies.

According to the Australian Investment Council, the peak body for private capital in Australia, local private-capital funds generated average annual returns above 14 per cent in the 20 years to June 2024, surpassing broader equity benchmarks. Based on its track record, Australian private equity delivers higher returns, with lower correlation to our deeply concentrated public markets.

There are other advantages, too: Australian private equity is local, so there is less currency risk, which is particularly appealing given the Australian dollar has landed close to its lowest levels since the GFC. Domestic product structures are also simpler, with fewer layers of fees and more direct exposure to enterprise growth.

We also know businesses are choosing to stay private for longer and have no need to execute an initial public offering (IPO). It is a win-win for founders who have quick and flexible access to capital, while spending less time navigating red tape and meeting continuous disclosure requirements. They can focus on growing the business as opposed to managing its share price, and private equity is supporting them every step of the way.

The power of the ‘messy’ middle market

When looking at local private equity more closely, Alceon believes the ‘messy’ mid-market is where Australia’s economic muscle lives, and by extension, the best opportunities exist. These are companies generating anywhere between $10 million and $1 billion in revenue, employing 25 per cent of the workforce, and producing 40 per cent of national business revenue.

For 15 years, Alceon has targeted this area of the market, in which there are 50,000-odd companies. We focus on identifying an impressive founder, sector, and/or business model with a specific challenge holding them back. These are good companies today, and with the right partnership, we know they will be great companies tomorrow.

Yet, they are surprisingly under-capitalised. There are nine times more mid-market businesses in Australia than the total number of ASX-listed firms, but only 1.5 per cent of total private equity capital has targeted this sector since 1993.

The mid-market is less competitive, delivers more attractive valuations, and has better alignment with founders who are seeking genuine partnerships. And when it’s time to exit, the buyer universe is deep and diverse, including mid-market private equity globally, large-cap private equity funds, and strategic acquirers.

The mid-market is Australia’s quiet engine room, and it’s time to fuel it. This is not just a tactical allocation, it is a strategic opportunity for investors willing to look beyond the ASX. It is an offer to partner with exceptional businesses and empower growth that shapes our economic future.