The private equity market - France (2024)

1.2 A growing global market

Global private equity market size World, ****-****, in $ billions Source: ****

The global private equity market is growing rapidly and is expected to reach approximately $*,*** billion by ****, with a compound annual growth rate (***) of *.**% between **** and ****. In ****, its value was estimated at USD ***.** billion, with a forecast of USD ***.** billion in ****. This market is being driven by a growing start-up culture and increased demand for investment diversification. In ****, North America dominated this sector with the largest market share, while the Asia-Pacific region is expected to be the fastest-growing in the coming years.

Private equity segments are varied: buyout funds, particularly attractive to advisors seeking higher returns, accounted for the largest market share in ****. In addition, the technology sector is the most sought-after, due to ongoing innovation in fields such as artificial intelligence and the Internet of Things. This dynamic is attracting investment in high-growth companies, especially in tech, finance, real estate and healthcare.

Major private equity firms such as Blackstone, Apollo Global Management and The Carlyle Group continue to dominate the sector, with assets under management reaching several hundred billion dollars.

The market is also benefiting from an economic environment favorable to private investment, but is facing challengesthe market also benefits from ...

1.3 A declining national market

Investments in the private equity sector are a good indicator of market trends.

Investment amounts France, ****-****, € billion Source: ****

The private equity market has seen a sharp rise since ****: This is largely due to a lenient regulatory framework towards it. The **** Macron law facilitates the transfer of French savings to this sector via life insurance policies. Secondly, the decline in **** was due to fewer outflows, with funds preferring to help companies survive the crisis and then sell them when the economy improves. The exceptional performance in **** can be explained by the same reason as above, and by the fact that interest rates were at *%, which enabled investors to benefit from colossal leverage, borrowing to buy unlisted companies. The gradual decline in **** and **** is explained by the gradual rise in rates, which in February **** were already at *% , and by the increasingly unstable geopolitical context.

It's worth putting this decline into perspective: in ****, private equity recorded its third record year in terms of amounts invested. Moreover, net profitability in this sector outperforms many other traditional asset classes.

First of all, it's important to understand what Tri net (***), as well as the net asset value of units held at the calculation date. Net IRR ...

2.1 Company start-ups drive the private equity sector

Investing in companies is investing in the real economy, and the main determinant of investment in the real economy is the real economy itself. If the economy is doing well, cash is flowing, investors have confidence and are putting their money into a wide variety of projects affecting the economy, including private equity.

The first obvious macroeconomic indicator for feeling the pulse of the economy is undoubtedly the French GDP: according to INSEE, Gross Domestic Product (***) measures all the wealth created by a country in one year. It is calculated as the sum of added value produced by resident economic units, plus taxes and minus subsidies. There are three approaches to calculating it: production, demand and income. [***]

Evolution of French GDP in value France, ****-****, in billions of euros Source: ****

French GDP is therefore rising year on year, with a net increase in ****. OFCE sees an increase of *.*% in **** and *.*% in ****. [***]

This positive macroeconomic situation is an interesting element for our subject, as a flourishing economy is a necessary condition for investment, and even more so for private equity! But let's get back to the subject in more detail: private-equity activity is highly dependent on the number of start-ups, as these ...

2.2 Business failures are an obstacle to private equity investment

Company failures are also a key indicator in private equity, as they send a signal to future investors as to whether their investment is worthwhile: if company failures are numerous and increasing from year to year, this means that a private-equity investment may fall through (***). This indicator therefore acts as a signal.

Trend in French business failures France, ****-****, in thousands Source: ****

Business insolvencies have risen substantially since ****, reaching **,*** in ****.

Business failures in **** can be explained by several factors.

Firstly, although economic growth is limited (***) has continued, and Urssaf has stepped up its formal notices in some regions, particularly since September ****.

However, when we look at this data in more detail, we see that for micro-businesses, for example, the default rate is virtually unchanged compared with **** (***) on ****.

In ****, according to Alain Tourdjman, business failures are set to rise further, reaching around **,*** cases (***). This scenario remains uncertain, depending on numerous factors such as the evolution of economic activity, interest rates and inflation, as well as companies' ability to repay debts linked to the Covid crisis. The typology of defaulting companies could also evolve.

While the retail, agri-food and personal services sectors are likely to improve, insolvencies in the construction, catering and business ...

2.3 Monetary policy as a determinant of private equity

Trends in key ECB interest rates Europe, ****-****, in Source: ****

The relationship between monetary policy and investment is one of the central themes of macroeconomic analysis, particularly when it comes to studying the impact of interest rate variations on the real economy. The IS-LM model, introduced by Guy Laroque in ****, provides a robust theoretical basis for understanding these mechanisms. This model highlights how money demand and investment are sensitive to changes in nominal interest rates and investors' expectations of future price and wage trends. When interest rates rise, as they did in **** under the impetus of the European Central Bank (***), the cost of physical capital for companies also rises. This reduces the incentive to invest, as expected future profits have to be discounted at a higher rate, lowering the profitability of investment projects.

Laroque also emphasizes the role of expectations in these mechanisms. If investors anticipate a fall in real wages or future prices, this may reduce their appetite for physical capital, as they expect future production costs to be lower, making labor more attractive than capital in the long term. What's more, if rising interest rates are perceived as an indicator of future disinflation, profit expectations fall, accentuating the drag ...

2.4 Private equity's popularity depends on other asset classes

The popularity of private equity depends on other asset classes. An interesting indicator for understanding the potential of this unconventional asset class is its long-term average annual performance. For the time being, it outperforms all other asset classes over ** years.

Annual performance over ** years France, average over ****-****, in Source: ****

Private equity is clearly outperforming traditional assets in France, yet the emergence of new asset classes is beginning to compete with private equity.

The first is gold, which has posted an average annual return of **.**% over the past ** years (***)[***]

Then there's the S & P ***, with a **-year return of **.**%, and even more recently, with a **.**% rise to ****. [***]

Finally, Bitcoin, which Blackrock itself defined as "an asset to have in your portfolio" in September ****, outperforms all assets combined, with a performance of ****% on average per year over the last ** years.[***]

2.5 Where do the French save?

To understand the investment trend in France, and therefore the possibilities for private equity financing, it's important to have an idea of what savings represent in France.

Gross savings are defined as disposable income minus consumption, unlike net savings, from which debt repayments are also subtracted.

Gross savings of French households France, ****-****, in billions of euros Source: ****

In ****, there was a net increase in gross savings by French households compared with ****. Now let's look at where these savings are heading, by focusing on the *th quarter of ****. In this quarter, gross savings amounted to ** billion euros, to which must be added *.* billion euros in debt to financial institutions and *.* billion euros in other debts.

Where French people's savings go France, Q* ****, in Source: ****

In this chart, household GFCF is used exclusively for housing. This means that in Q* ****, households put more than **% of their savings into financial investments.

Another interesting indicator is the analysis of quarterly flows of household financial investments. By analyzing these, we obtain this graph:

French financial flows into listed and unlisted equities France, Q*/Q* ****, in billions of euros Source: ****

Between the third and *th quarters of ****, French investments rose from *.* to **.* billion euros, a figure ...

2.6 The French and private equity?

BPI France and France invest have released a barometer on private equity in ****. The sample is made up of *,*** people from CSP+, according to quota methods for age, gender, CSP and region. The results are as follows:

Key figures for private equity France, ****, in % of total Source: ****

Compared to ****, there has been a clear increase in all these indicators, particularly in the projection of players (***): *% more than in **** are ready to reinvest in private equity.

This barometer shows that a new target group is emerging when it comes to private equity investors: young professionals aged ** to **.

Key figures for the **-** age group France, ****, as % of total Source: ****

A new target group for private equity is the young, active **-** year-olds. In all questions relating to private equity, they rank above the average of survey respondents, making them prime candidates for private equity investment.

However, the conclusion of this France Invest barometer gives recommendations for this sector, recommendations which, if followed, could enable the entry of a multitude of new small investors (***) who, for the moment, are cool to the idea of investing in private equity for a number of reasons:

The first is the entry ticket, the lowest being €**,*** for ...

3.1 Value chain

Source: ****

Value chain:

Investors (***) is a French institutional investor that invests in private equity funds to support strategic national projects

Investment vehicle (***): This is the private equity fund itself. This vehicle is administered by a management company that makes investment and divestment decisions in companies. Example: Bpifrance entreprise avenir *: a venture capital fund managed by bpi France.

Portfolio companies: These are the companies in which the private equity fund invests. The aim is to help them grow and increase their value before reselling them. Example: Doctolib, a French company specializing in online medical appointments, has received investments from private equity funds managed by Eurazeo.

Definitions:

Gross performance: This is the added value generated by investment in a company, before associated costs and expenses. It results from the increase in the company's value through growth or improved profitability.

Net performance: This is the performance received by investors after deduction of management fees and carried interest (***). This is what investors actually receive.

3.2 Characteristics of private equity fundraising

All the charts in Part * (***) deal with data excluding Infrastructure Funds.

Private equity capital raised, excluding infrastructure funds France, ****-****, in billions of euros Source: ****

Between **** and ****, the CAGR (***) is **%. Despite a slight decline in ****, the overall trend in capital raising is upward.

Despite this drop in the total value of fundraising in ****, a trend is emerging: the increase in large-value fundraising:

Fundraising by size France, ****, in billions of euros Source: ****

Large-scale fundraising will account for almost a third of total private equity fundraising in ****. Importantly, the number of fundraisings in excess of €* billion has doubled since ****, from * to *.

It's interesting to look at where these fundraisings are coming from:

Breakdown of fundraising by geographic origin World, ****, as % of total Source: ****

Despite a complicated global situation, international fundraising remains significant (***). a total of €**,*** million was raised in private equity in ****. The *-year average does not differ greatly from these results. Over the period ****-****, the annual average of funds raised in France is **,*** million euros, or **% of the total.

Now let's take a closer look at who raised private equity funds:

From whom were funds raised? France, ****, in millions of euros Source: ****

In ****, *.* billion euros were raised from individuals and family ...

3.3 Private equity investments

Number of companies supported France, ****, in units Source: ****

Over the ****-**** period, the average annual growth rate is *%. Investments are gradually increasing.

In terms of the structure of these investments, a new trend can be observed:

Breakdown of amounts invested France, ****, in Source: ****

Emerging trend: primary transactions in **** are ** percentage points below the ****-**** average. A primary transaction is an investment in a company that opens its capital to France Invest members for the first time. This means that it is initial financing, often for companies in a growth or development phase, seeking external capital for the first time to expand.

This echoes the figures in the previous section on fund-raising, which in **** was overwhelmingly aimed at the Buyout segment: there is less liquidity for Venture Capital and Growth Capital investments.

In terms of average investment size, a new trend is emerging in ****:

Amounts invested in private equity France, ****, in millions of euros Source: ****

A new trend is emerging: investments in excess of €** million are significantly down on the averages for ****/****, a period marked by strong momentum in the post-Covid context, with a **% drop in amounts compared to this average. This decline is less pronounced in the mid-cap segment (***), which remains ...

3.4 Disposals down

In private equity, a divestment is the sale of a fund's stake in a company, enabling a return on investment to be realized. This operation is often the fruit of a medium- or long-term strategy in which the fund increases the value of the company before selling it at a capital gain.

Disposal is crucial, as it frees up capital to invest in new companies, thus stimulating the sector's dynamism. However, a drop in disposals may indicate a more complex economic situation: potential buyers may be fewer in number or more hesitant due to a rise in interest rates, which increases the cost of financing. This can discourage the acquisition of companies, especially as institutional investors, often major buyers, are more cautious.

A decline in divestments may therefore be a sign of caution in the market, or of increased difficulty in obtaining financing, slowing portfolio renewal and innovation in the private equity sector.

Breakdown of divestments by number France, ****-****, in units Source: ****

The volume of divestments in **** is down **% on ****, to *,***.

Share of final disposals France, ****-****, in units Source: ****

This drop in company disposals is a sign that investors are more skeptical about the idea of exiting the market, ...

4.1 Offer typology

The private equity sector is made up of a diverse range of players, all of whom are involved at different stages of a company's development, with specific investment strategies. The main players include business angels, venture capital firms, mutual funds (***) and corporate private equity funds.

Business angels are wealthy individuals, often from the business world, who invest in young, high-potential companies. They are usually involved in the seed or start-up phase, contributing not only funds but also their expertise and network. For example, an innovative entrepreneur can raise between **,*** and several hundred thousand euros from several business angels.

Venture capital companies (***) specialize in acquiring stakes in unlisted companies, particularly in the start-up and development phases. These companies often invest larger amounts, often in excess of €* million, and aim to generate substantial capital gains within a few years, generally between * and * years. by way of example, some SCRs focus on specific sectors such as biotech or deeptech.

Secondly, venture capital mutual funds (***) are financial vehicles managed by specialized companies. These funds have no legal personality of their own, but offer investors an opportunity to diversify their investments while supporting companies in their start-up or development phase. They are often specialized by sector ...

4.2 Managed management and Business Angels

There are many different ways to invest in private equity, and in this sub-section we'll look at two of them:

The first is managed via a platform: you register on the platform and gain access to private equity assets.

Among the best managed funds on the market, Ramify stood out at the end of **** by integrating private equity into its investment offer, an exclusivity in this field. While traditional managed portfolios are generally limited to euro-denominated funds as well as equity and bond funds, Ramify offers a more diversified approach.

To access the "Ramify Elite" portfolio, which includes this diversification, a minimum investment of €**,*** is required. Subscription is fully digitalized and easy to use. The portfolio comprises several types of assets, including :

euro funds (***), eTFs (***), sCPIs (***), private equity funds (***), private debt funds (***).

These investments are made within the tax-advantaged framework of life insurance or the Plan Épargne Retraite (***). Management is adapted to your investor profile, whether you are cautious, moderate or more aggressive, adjusting the proportion of equities and private equity in your portfolio. [***]

The second way to invest in private equity is directly as a business angel. It is mainly practiced by experienced investors - often executives or former executives ...

4.3 Approved funds: FCPR, FCPI and FIP

Another option for investing in private equity is to use accredited funds.

The first of these are venture capital mutual funds (***). FCPRs are defined as vehicles for investing in the securities of unlisted companies, and their investment portfolios must comprise at least **% of unlisted companies.

Under certain conditions, FCPRs are tax-advantaged for individual investors, mainly through income tax exemption on distributions. To qualify, investors must hold their units for at least five years, reinvest the sums received in the FCPR and limit their holding to less than **% of the rights in the companies included in the fund. If these conditions are not met, the exemption is cancelled, and previously exempt distributions become taxable. In addition, capital gains realized on the sale of units after five years may also be exempt, provided that the fund complies with the same exemption conditions. However, all capital gains, whether exempt or not, are subject to the **.*% social security levy deducted at source by the fund. Lastly, if the subscription is made within a specific tax framework, such as a PEA-PME or life insurance, it benefits from the tax treatment specific to this scheme.

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What's important to note in this table is that the FCPR ...

4.4 Private equity funds, the Moonfare case

Investing in private equity with reputable management funds, such as those of Edmond de Rothschild, is an attractive option for wealthy investors, but access is often limited: entry tickets generally start at ***,*** euros, or even several million for the most prestigious funds. A typical investor needs to diversify across several funds, with a substantial capital base, to limit risk and balance investments.

To democratize access to private equity, platforms like Moonfare offer an alternative. Founded in **** by Steffen Pauls, stands out as a revolutionary platform in private equity by offering more democratic access to private equity. Traditionally, this sector has been reserved for wealthy investors due to the high entry tickets, often to the tune of a million euros or more, required to access high-quality funds. Moonfare's mission is to change this dynamic by lowering these financial barriers, enabling individuals to invest in renowned private equity funds from as little as €**,***. While this threshold remains significant for many savers, it opens the doors to a much wider audience, often excluded from these investment opportunities by high capital requirements.

This technological platform offers investors a portfolio of prestigious funds managed by global leaders such as KKR, Carlyle and Apax Partners, previously reserved ...

4.5 Investing in private equity via life insurance

Investing in private equity via a life insurance policy is an accessible and flexible option for individuals seeking to diversify their investments. Unlike traditional private equity funds requiring high entry fees (***) offers access to renowned funds such as Ardian and Apax from as little as €*,***, enabling diversification at lower cost. The contract offers a wide selection of unlisted funds, including ** private equity funds in various fields such as buyout capital, green infrastructure and European SMEs.

What's more, this type of investment benefits from advantageous liquidity, since investors can sell their units at any time, although penalties apply if they withdraw before five years have elapsed. In terms of taxation, life insurance offers attractive advantages: no capital gains tax after * years, and an annual capital gains exemption of up to €*,*** for a single person, or double that amount for a couple.

With its low fees, Linxea Spirit * life insurance combines accessibility and tax optimization, offering an ideal solution for individuals wishing to invest in private equity while retaining a high degree of flexibility and benefiting from an advantageous tax framework. [***]

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4.6 Private-equity investment via trackers and the stock market

Investing in private equity via the shares of listed management companies and trackers (***) offers an attractive alternative for individual investors wishing to gain access to the performance of this sector, traditionally reserved for high net worth individuals. This method is based on the purchase ofshares in companies specializing in private equity, such as:

The Blackstone Group (***)

KKR & Co (***), with $*** billion, almost half of it in venture capital.

The Carlyle Group (***), with $*** billion in AUM

Apollo Global Management (***), with over $*** billion in AUM under management

EQT (***), a European benchmark listed in Stockholm, with $** billion in AUM.

By investing in these shares, you gain indirect access to private markets, while benefiting from the liquidity of the stock market and the flexibility of tax wrappers such as the PEA and PEA-PME, allowing you to optimize your tax situation.

For investors who prefer a broader approach, trackers (***) offer an automatic diversification solution. These passive investment funds combine shares from several management companies, providing diversified exposure to the private equity sector without having to choose each share individually. Popular ETFs include

theLyxor PRIVEX ETF (***) and an annual management fee of *.**%. This tracker brings together a number of leading asset management companies, offering a comprehensive overview of ...

5.1 National regulations

PACTE (***):

The Pacte Law (***), adopted in ****, aims to facilitate the financing of French businesses by making greater use of individual savings. It includes schemes enabling savers to invest in private equity via life insurance products, in order to support the real economy. The law also introduces a simplified version of eurocroissance contracts to make these investments more attractive and comprehensible to the general public. [***]

Sapin II law for retirement savings: (***)

In April ****, as part of the Sapin II law, new occupational retirement funds (***) were created for group retirement savings. These funds, designed to encourage equity and private equity investments, make it possible to direct retirement reserves towards financing unlisted companies. [***]

Eurocroissance life insurance contracts (***):

Since September ****, the public authorities have launched eurocroissance contracts to encourage French savers to invest in the real economy through their life insurance. These contracts are diversified and oriented towards financing French companies, but offer a capital guarantee only after eight years of ownership. [***]

Macron Law (***):

In August ****, the Macron law introduced a new opportunity to invest in private equity via life insurance, allowing individuals to direct part of their savings towards unlisted companies. Insurers such as AXA, CNP and BNP Paribas included this option in their ...

5.2 European regulations

AIFM Directive (***):

Adopted in ****, this European directive provides a framework for the management of alternative funds, including private equity funds, and imposes transparency and risk management requirements. It aims to harmonize rules within the European Union for hedge funds and facilitate cross-border investments. [***]

UCITS Directive (***):

The UCITS Directive mainly regulates public funds, but has an indirect impact on certain private equity funds. It defines standards for the management and distribution of financial products in the EU. Its ongoing evolution aims to adapt the legislative framework to the challenges and diversification of financial products. [***]

Basel III (***):

This regulation imposes increased capital and solvency requirements on banks, with a minimum solvency ratio of * to **.*%. For private equity players, this means that banks may become more selective in granting loans, particularly for high-risk financing such as that often associated with private equity transactions. As a result, private equity funds may find it more difficult to raise funds via bank loans, which could limit their leverage capabilities in leveraged buyouts (***). [***]

EnterNext PEA-PME *** (***):

The PEA-PME scheme itself, launched in ****, is aimed at French tax residents and enables them to invest in SMEs and ETIs (***) while benefiting from an income tax exemption after five years of ownership, ...

6.1 Segmentation

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6.2 Private Equity: State of Play and Outlook

Introduction:

Theprivate equity sectorhas been on a roll in recent years, reaching a record year in **** with **.* billion euros invested in the sector.

this is driven by a lenient regulatory framework (***). The ECB's monetary policy has also contributed to the expansion of this sector: very low interest rates from **** to **** enabled many unlisted companies to be financed and acquired through debt.

However, since ****, even though it remains the third-biggest year for private equity in France, a decline has been observed. The rise in key interest rates in **** makes investment more complicated, particularly the leverage used by some private equity funds.

Major industry trends:

First trend: The liquidity of the private equity market. One of the conclusions of France Invest's **** barometer was that respondents would like to lock in their investments for a period of less than * years. However, new industry platforms such as Moonfare are making this possible through an internal secondary market in which shares can be resold periodically. This trend is confirmed by France Invest: in ****, transactions on the secondary market will increase by ** percentage points compared to the ****-**** average, reaching **% (***).

Second trend: industry consolidation. The private equity sector is consolidating through a series of mergers and acquisitions ...

• Raise invest
• BPI France
• Tikehau Capital
• CVC Capital Partners
• Infravia Capital
• Macquarie Capital Group
• Oaktree Capital Management
• Butler Capital Partners
• D&P Finance
• Perceva Capital
• Vermeer Capital
• Sofimac Investment
• Caravelle
• Arcole Industries
• SUN EUROPEAN PARTNERS SAS
• Wendel
• Altran
• Eurazeo
• SILVR
• Eutopia