Only the top quartile of buyout funds in the local market are likely to successfully raise new funds, while the remainder will be left with legacy investments and unable to raise capital, the conference was told.
"People who have come through the cycle well you will see them have successful fund raises. Others will just not get funded at all. It will be binary," said Michael Lukin, managing director at Macquarie Funds.
Lukin was speaking at the Australian Private Equity and Venture Capital Association annual conference, which brings together some 500 of the country's private equity partners, their investors, advisers, bankers and lawyers.
On a downbeat panel on Thursday that addressed "staring into the abyss" of raising a new buyout fund, industry executives said much of the pressure has come from consolidation in Australia's pension fund industry, which manages some A$1.3 trillion, and where a government overhaul is aiming to cut fees and streamline investment choices for consumers.
Among the few firms currently tapping investors are CHAMP Ventures and Archer Capital, which is raising a A$1.2 billion ($1.2 billion) fund. CHAMP Ventures said it was finding it tough going.
Stuart Wardman-Browne, director of CHAMP Ventures, said the company has had to cut fees and tap offshore investors for the first time for its seventh fund, which has raised A$275 million so far out of a target of A$450 million.
About 60 percent of the investors in the new fund are based outside of Australia.
"Some see Australia as being on the safer side of Asia. Some see as us the sole growth market in the OECD. In Europe, we are playing to the fact we are safer than China, plus being able to leverage off Chinese growth," he said.
Yet for all those positives, Wardman-Browne said potential investors were scrutinising the firm's performance to a degree never before seen.
"We thought it would be easier. We have had to concede on fees. We have ended up talking through each individual company in significant detail with each potential investor," he said.
The new fund would only charge performance fees after all money was returned to investors, rather than after each deal.
The economic downturn since the global financial crisis has marked the first negative cycle many private equity managers in Australia have faced, where the industry is younger than in the United States and Europe.
Several companies in the retail sector have been placed under administration, including REDGroup, owned by Pacific Equity Partners. REDGroup owned the Borders bookstore chain.
Macquarie's Lukin said some investors were demanding that individual companies that were underperforming needed to see a turnaround in performance before committing to a new buyout fund.
"In this environment, people are looking for reasons to say no rather than yes," to investing in a new PE fund, Lukin said. Over the next year or two, some buyout funds that have not made adequate returns for investors will likely not be able to secure new investments.
"Who doesn't and who does get the next fund-raising could change the landscape quite substantially in the next few years," said Alicia Gregory, portfolio manager in private equity at fund manager giant MLC, a division of National Australia Bank.