Private Equity

What is Private Equity?

Private Equity (or capital investment in French) supports unlisted companies over a determined period. By taking a stake in the capital, the investor provides them with the necessary equity to finance development projects. It supports the creation of start-ups (innovation capital), participates in the growth and innovation of many SMEs and mid-sized companies (development capital), and contributes to business succession (transmission capital).

It thus promotes the emergence of national champions and flagship companies in our regions. The advantage of Private Equity is that it allows companies to limit their debt by strengthening their equity.

Private Equity mainly consists of unlisted shares whose performance is closely linked to the success of the company. Private Equity complements bank loans but without imposing the obligation of regular loan repayments, which weigh on the cash flow that growing companies heavily need.

Why invest in Private Equity?

Contributing to the financing of the real economy. By choosing Private Equity, savers support the transformation and growth of companies and thus help to support the economic recovery.

Private Equity plays a key role in the economic dynamics of regions by financing and supporting local businesses. For those that are being created or opening their capital to transform themselves, Private Equity remains an extremely effective driver.

A high-performing asset class. While Private Equity allows many companies to finance their development and transfer, it is also, for informed savers, from a long-term perspective and for a minority portion of their assets, a complementary investment solution to regulated products (Livret A, LDD, etc.), UCITS, or investments in securities (stocks, bonds).

Diversify your investments. Investing in Private Equity allows you to diversify your portfolio. It is generally advised to diversify your investments across different types of assets to overall reduce the risk taken.

An attractive tax framework. Mutual funds investing in unlisted companies benefit from an attractive tax framework, under certain conditions. For FCPI and FIP, the holder will benefit from income tax reductions, the amount of which is capped according to the finance law in effect at the time of subscription. These products offer tax reductions to support the growth of younger companies often having specific characteristics related either to geography or to their innovative activity.

How to invest in Private Equity?

Private Equity is a category of funds available to informed investors. The vast majority of funds raised in Private Equity are intended for institutional investors. Nevertheless, individuals have access to suitable products for investing.

Four categories of funds are available to savers:

• FCPR (Risk Mutual Investment Funds), which are invested at a minimum of 50% in shares of unlisted SMEs or mid-sized companies.
• FCPI (Innovation Mutual Investment Funds), which are invested at a minimum of 70% in shares of innovative unlisted European SMEs.
• FIP (Proximity Investment Funds), which are invested at a minimum of 70% in regional unlisted European SMEs.
• FPCI (Professional Private Equity Funds), which are invested at a minimum of 50% in shares of unlisted SMEs or mid-sized companies and are reserved for informed clients capable of investing a minimum of €100,000 in these vehicles.

What are the risks associated with Private Equity?

These product categories have a high-risk profile. They are subject to the approval of the Financial Markets Authority (AMF). Their characteristics are detailed in the key information document (KID), and all risk factors are described in their regulations.

The main risks of these products are:

• A capital loss risk since the development prospects of the companies in which the fund invests are uncertain;
• A liquidity risk since the fund cannot quickly sell its unlisted assets or those listed on illiquid markets;
• A risk related to the valuation of the securities in the portfolio since the fund may have to sell its assets at a price lower than expected, as well as an interest rate risk if it holds bonds in the portfolio.

As this is a risky financial investment, it is always preferable to be accompanied by a professional.