Private Equity is slowly (re)making a place in the savings of the French

With the abolition of wealth tax in 2018, fundraising on FCPI[3] (Fonds Commun de Placement dans l’Innovation) and FIP (Fonds d’Investissement de Proximité) investment vehicles, intended for individuals, fell drastically, from one billion euros in 2017 to 355 million the following year. And for good reason, the popularity of these investments was directly related to the tax advantage reducing the amount of the ISF for investors.

If the attractiveness of FCPI and FIP has not yet regained its popularity of yesteryear, Private Equity[1] has still managed to make a place in the savings of the French in 2021, collecting a record amount of € 4.3 billion, or 2.5 times more than in 2020 according to France Invest, the representative of Private Equity[2] in France. These rounds were mainly driven by family office subscriptions, which tripled the stake to €1.7 billion, as well as subscriptions to non-professional funds.

Still according to studies communicated by France Invest, the first half of 2022 continues this dynamic with €1.9 billion subscribed, 17% more than in the same period the year before. However, figures for the full year have not yet been released.

More accessible investment products

Last December, Bpifrance announced the closing of its FCPR (Fonds commun de placement à risque) Entreprises 2 fund, intended for non-professional investors. The balance sheet is more than satisfactory for the Bpi, which will collect 100 million euros from 7,000 individuals, nearly double the number of subscribers attracted by the Companies 1 fund launched in 2021, highlighting the appetite of non-professional investors for this asset class. An appetite justified in particular by an entry ticket at € 3,000 against € 5,000 for the previous generation.

The multichannel distribution strategy also plays a role in the attractiveness of these solutions for individuals. A few years ago, you had to get closer to an insurance broker who proposed to invest your savings in Private Equity for you. Today, it is possible to invest directly in a few clicks through the platforms set up by management companies. In the case of Bpifrance, €22 million was raised via their online platform.

Grey areas on fund management

While the returns posted by management companies may seem attractive at first glance, the levying of management fees and the uncertainty that persists on carried interest, and other remuneration received by intermediaries, remains a brake for small holders.

First, there are disparities in management fees according to managers. On average, these fees amount to 3% or 4% per year, which over a holding period of several years represents a significant amount, especially on small amounts.

Also, the funds committed are blocked for a period of 7 to 10 years. Although these amounts can be released in the event of job loss or death, some managers apply additional fees upon early exit. This rigidity can deter many knowing that the French are used to more flexible investments.

Finally, there is the carried interest, which corresponds to the outperformance premium that the investment team receives when an investment vehicle is in the capital appreciation phase. The carried is therefore a way to align the interests of investors, with those of the management team. Similar for all funds, this performance bonus represents 20% of the total profit earned by divestments.

If all this does not represent a substantial brake for the institutions who continue to inject billions of euros into these funds, the opacity of these practices and the mystery that remains around this industry is a major obstacle that continues to stand between the French and Private Equity.    

By Amir Perez for Fibee

Termes et définitions
1. Private equity ( Private Equity ) Le Private equity est un type de financement qui consiste à investir de l’argent dans des entreprises non…
2. Equity ( Equity ) Equity est un terme qui désigne une forme d’investissement à long terme dans une entreprise. Lorsqu’un investisseur achète…
3. FCPI ( FCPI ) FCPI est l’acronyme de Fonds Commun de Placement dans l’Innovation. Il s’agit d’un type de fonds de placement…
Prec.
Allocating to private assets in open-ended funds
Suiv.
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