Sarah Thompson and Jake Mitchell
CHAMP Private Equity co-founder and executive chairman Bill Ferris has urged the government to set up a fund to encourage investment in the biotechnology sector, saying Australia is squandering billions of dollars due to its poor track record of fully commercialising groundbreaking discoveries.
In an exclusive interview with The Australian Financial Review, Mr Ferris, one of the doyens of private equity in Australia, spoke about the growing support among superannuation funds for a translational biotech fund (TBF), succession at his firm and managing director Ben Sebel stepping back from an executive role.
The 2013 McKeon review recommended a $250 million TBF, where the federal government would match private sector investment on a one-for-one basis.
“I think that the biggest single opportunity that we are on the edge of squandering is in biomedical and life sciences, where without any debate Australia is seen to be very successful in terms of discovery, whether it be new molecules, new drugs and new devices,” Mr Ferris said from the Australian Private Equity and Venture Capital Association Alpha conference in Melbourne.
“We have also got the governance and protocols respected around the world for clinical trials and yet we don’t seem to have the ‘D’ part of R&D (research and development) to get to commercialisation.
“Of course there are the great examples of commercialisation that are always rolled out, like Cochlear and ResMed.”
In a significant development in the push for a TBF, Mr Ferris said there was growing support among superannuation funds.
“Along with others in the industry, we are in pretty active discussions about such a fund and seeing increasing support among super funds who would participate in such a structure,” he said.
Mr Ferris said a government incentive structure could be similar to the Innovation Investment Fund.
“While CHAMP is not a player in the biotech sector, I am very keen for a TBF to be supported by government and major superannuation funds.
“There’s a sharing of risk, but the risk-return rewards structure is shifted towards the private investor to justify them taking the extra time and risk,” he said.
Mr Ferris is widely considered to be the father of the Australian private equity industry.
He set up the country’s first venture capital firm Australian Mezzanine Investments in 1987 with long-term business partner Joe Skrzynski, and the pair went on to found CHAMP in 2000 with a $500 million fund. At the time, private equity, a mainstay of American high finance since the 1980s, had yet to make a mark in Australia.
The two industry veterans have stepped into mentoring and strategic roles in recent years, handing over the reigns, in an operational sense, to CHAMP chief executive John Haddock, 38, and managing director Ben Sebel.
“The operations and portfolio management will fall more and more on John and we want to help with that.”
Effective succession planning is a big priority for private equity plans but is a complex process potentially involving emotional, legal and equity issues. None of the leading private equity firms in Australia has yet had to deal with its founders leaving the fold.
It’s a delicate task, considering many of CHAMP’s key investors have been aligned with Mr Ferris and Mr Skrzynski for more than 25 years.
Mr Haddock admitted that succession generally tended to go “less well” than well.
“I think the reason why to date this has been going OK for CHAMP is it’s been occurring for a number of years,” he said. “There has been a mutual understanding and respect.
“The founders need to be up for it and the team coming through has to be up for it and it requires longer-term commitment to success.”
Mr Haddock was made chief executive in February, in addition to his managing director role.
Mr Sebel would step back from his managing director role, Mr Ferris said.
“Ben [Sebel] is very keen to stay in the CHAMP world and following discussions with John [Haddock], he said he would like to stay in a non-executive role in portfolio companies but wasn’t really at the stage where he wanted to commit to the next 10 years for a new fund,” he said.
Speaking generally about Australian corporations, Mr Ferris said he was by and large in agreement with the Reserve Bank of Australia’s Glenn Stevens’s view that business leaders had become too risk averse.
“I think it’s partly due to the fact that historically we have been a small economy and partly because of the tax regime that favours passive real estate investing,” he said. “Those things don’t tilt the playing field towards taking risks.”