In ten years, private equity investment funds have gone from an entry ticket of 10 million euros to just a few thousand euros for the most mainstream investments, or even less for vehicles eligible for life insurance. “This phenomenon has accelerated over the past two to three years, which now allows everyone to diversify their assets by investing 5 to 10% of their assets in the capital of unlisted companies, and up to 30% for people who are not afraid to tie up their savings for several years,” says Jérôme Rusak, founder of the wealth management firm L & A Finance. In 2023, individuals and family offices (firms managing the assets of wealthy households) were the leading subscribers to private equity, with 4.7 billion euros contributed, ahead of insurance companies, banks and pension funds…
The democratization of this investment, previously reserved for the very wealthy, has been encouraged by political will. Several texts have relaxed the rules governing the marketing of private equity, including the law of October 23rd on the green industry. The latter even introduces the obligation of a minimum share of unlisted assets in managed retirement savings and life insurance from this fall. Fund managers have also seized this new niche, which offers them a welcome source of growth.
Private equity certainly has no shortage of advantages. Starting with a greater proximity to the object of financing, which particularly appeals to business leaders and entrepreneurs. “We know what we are investing in,” says Luc Maruenda, partner in charge of the Wealth Solutions activity at Eurazeo. “It is a notion that has been largely lost in the world of listed companies and which allows us to give meaning to our investment.” In addition, unlisted companies tend to behave differently from other investments. “Generally speaking, they are correlated with the macroeconomy,” analyzes Estelle Dolla, president of Private Corner. “However, they have always obtained better results than listed companies. They are characterized by much more effective governance, with an alignment of interests between investors and operational staff. As a result, unlisted companies often resist better in times of crisis and benefit more from the recovery.”
Because the primary advantage of private equity lies in its performance potential. Over ten years, to the end of 2023, these funds have generated an average annual growth of 13.3%, according to the professional association France Invest. “It is the most competitive asset class of the last twenty years,” underlines Souleymane-Jean Galadima, CEO of the digital family office Sapians. Several factors justify this. First of all, the range of companies is much larger. You also invest earlier in the life cycle of a company. “This allows you to benefit from the value creation of companies before their IPO,” explains Estelle Dolla.
Finally, investors benefit from an illiquidity premium. Indeed, these are very long-term investments, a period during which you cannot touch your capital (except in exceptional cases). This is why the remuneration must be better than on listed markets, in order to compensate for this constraint. “Private markets must provide between 3 and 4 points of outperformance compared to financial markets, estimates Luc Maruenda. Below that, it is not worth tying up your savings.”
Two types of funds
These figures must however be considered with hindsight because they mainly refer to the funds subscribed by institutional investors (mutual insurance companies, pension funds, life insurers, etc.). Among the products currently offered to the general public, two types of funds must be distinguished.
The first are called professional and require a minimum investment of 100,000 euros. Lasting ten to twelve years, they operate with calls for funds. This means that the money is not mobilized immediately, but is requested gradually over the first four or five years of the fund’s life. “When the management company calls for funds, it is often necessary to respond within eight to fifteen days maximum, which can be complicated for a private client who is not supported by a professional,” notes Frederick Crot, president of the French Family Office Association (AFFO).
On the contrary, mass-market products, accessible with a few thousand euros, allow the sums devoted to private equity to be invested in one go. They are generally structured in the form of risky mutual funds (FCPR) and can even, for some of them, be housed in life insurance.
“It is much easier to seek performance on a professional fund because its fees are lower and it supports fewer investment constraints, explains Souleymane-Jean Galadima. In addition, in a FCPR with a single call for funds, for three to four years, the time of deployment, the money does not work entirely, which degrades the profitability of the product.” So many factors that explain significant differences at the end of the day and which must be well aware of to avoid painful awakenings. Differences in treatment perfectly assumed by asset managers like Eurazeo. “We invest for individuals in exactly the same operations and under the same conditions as in our institutional funds, explains Luc Maruenda. But we have created products reserved for individuals because this clientele does not have the same objectives or the same constraints.” As a result, for identical management, a deterioration of 3 to 4 points in the internal rate of return can logically be anticipated.
To prevent this erosion from going any further, selectivity is essential. In the unlisted world, the differences in results are very high from one product to another. “We find high-quality products, but if the collection reached too high volumes, some could start investing in less interesting files,” notes Jérôme Rusak. It is therefore necessary to bet on the most experienced teams. “Check the expertise, legitimacy and quality of the teams of an asset management company, recommends Souleymane-Jean Galadima. And favor a history of regular results rather than higher but more volatile progressions.” In fact, do not rush into the first product that comes along. “You should not hesitate to seek advice from several sources, take your time and analyse different proposals before making your choice,” says Estelle Dolla. “Shop around the market, ask your financial advisors and, above all, compare the information you are given in terms of fees and target performance.” If you are investing large sums, don’t forget to diversify the partners to whom you entrust your capital.
3820CT PLACEMENTS private equity
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Furthermore, it is better to start by focusing on the growth capital segment, which targets mature and profitable companies with growth potential that the funds will support. A less risky niche than that of young shoots with certainly higher potential, but also more hypothetical. Finally, if you are wondering about the relevance of investing in the current context, you can always split your investments in order to smooth your entry points over several years.
Evergreen funds are multiplying
In recent years, evergreen funds have made a place for themselves among the largest private equity managers. This term, derived from botany, can be translated as “persistent”: it refers to perpetual funds, as opposed to traditional funds in the unlisted world, whose lifespan is determined in advance (eight years, ten years). A period of time at the end of which the fund is closed and the capital returned to investors.
In the case of an evergreen, savers benefit from greater flexibility since they can invest whenever they want and recover their funds at regular intervals (once a month, for example). “Evergreen funds are more diversified and allow for a shorter-term investment horizon than closed-end funds,” summarizes Agathe Bubbe, director of Eurazeo’s Wealth Solutions activity.
These products are therefore particularly suited to the constraints of individuals. To allow this type of management, they must however include a liquid pocket. “This is a freedom that is given to customers, but which tends to degrade the profitability of the product since the liquid pocket is less efficient, so they must be aware of this”, warns Frederick Crot, of AFFO.
An article from the special report “The best investments for the start of the school year”, published in L’Express on September 19.
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