Investing in the capital of unlisted companies has never been so easy and yet, they still represent only a drop in the bucket in the heritage of the French. But things are changing: in the first half of 2023, private investors represented 26% of private equity fundraising, according to France Invest, becoming the leading category of subscribers ahead of funds of funds and insurers. In addition, the Green Industry law of October 2023 plans to establish a minimum share of unlisted assets in management managed in life insurance and retirement savings.
Enough to accelerate the movement to democratize private equity, which has already begun. “This is an investment category that arouses the interest of my wealthy clients because it is connected to the real economy and offers better visibility on performance than products listed on the stock exchange,” notes Vincent Coumans, management advisor of heritage at Vaneau Gestion Privée, member of the Neofa platform.
Past performances difficult to reproduce
It also presents tempting prospects. Over the last ten years, the annualized profitability of private equity amounted to 14.2% net of fees. But we must consider that these are past performances, which will be difficult to reproduce, because the environment has changed. The Neuflize OBC bank is therefore counting on an annual return of around 9% for the asset class over the next five to ten years due to tight valuations and higher financing costs.
In addition, “this figure reflects the historical and long-term performance of private equity funds intended for institutional investors, the historical clientele of these products, and does not represent all unlisted, in particular private debt”, underlines Guillaume Cousseran, associate director in charge of investor relations at Seven2. However, these vehicles operate with calls for funds: “When subscribing, the investor commits to a stake but he does not pay the entire amount immediately, explains Vincent Coumans. He contributes 10% each semester for five years for example.” This will give the manager time to identify promising projects and invest over time. In the meantime, uncalled capital can be placed in term accounts or money market or bond funds. However, the most general public products – in particular those referenced within life insurance – are not burdened with this constraint and provide for a single immediate payment… even if it means letting the money sleep before investing it.
Risk of disappointment
Another notable difference: certain supports for individual customers provide a cash pocket to deal with possible exit requests. “The Financial Markets Authority requires maintaining a significant percentage of liquidity in vehicles for semi-liquid products intended for life insurance or the general public, which necessarily has a dilutive effect on performance,” specifies Guillaume Cousseran. Some also choose to include a portion of listed assets, for greater flexibility. “Democratization often involves twisting the founding principles of the asset class and as a result, performance risks disappointing investors,” fears Estelle Dolla, president of Private Corner.
Individuals can certainly access offers similar to those of institutions, but they must then be able to pay at least 100,000 euros to access them. And whatever happens, the costs will always be higher, mainly because you have to pay for a sales and advice network. Practices vary greatly from one actor to another, so it is essential to find out. If a performance fee (carried interest) is planned, it is necessary to check at what level it is triggered. “It is unacceptable to plan for carried from the first euro of gain,” warns Estelle Dolla. Put together, all of these elements can cost 30 to 40% in performance.