Why invest in Private Equity?
Private equity is a generic term for the acquisition of equity participations
in unlisted companies at different stages of their development.
Its primary attraction is performance: Private equity investments posted a higher annual performance than all other
asset classes including the stock market over the five-year period between 1999
and 2003.
Private equity is a completely different class of asset that allows optimal diversification
of portfolios of diversified long-term assets (10 years) and an optimisation of
the risk/return profile since the performance of investments in unlisted companies
is not directly correlated to the evolution of the main stock market indices.
In addition, the French private equity market is currently experiencing rapid
growth (investment volume was up 26% in 2006 compared with 2005 according to the
AFIC) and has good growth potential both on the early-stage (venture capital) and the later-stage (expansion capital
& buyout) segments.
How to invest?
Investments in unlisted equity can be made via specialised mutual funds such
FCPRs (French regulated mutual funds) or by investing directly in the capital
of a company or via a fund of funds.
The FCPR explained :
Private equity investments can also be made via FCPRs (French regulated mutual
funds dedicated to private equity)
The most common form of FCPR is the fund of funds (FCPR of FCPRs) which offers
investors pre-defined allocations in terms of the different segments of private
equity (early / late stage, etc.) and the geographical location of target companies.
Specialised FCPRs (focused exclusively on expansion capital and buyout) allow
individual investors to choose their preferred type of allocation and to adjust
the risk/return profile of their overall portfolio of unlisted shares.
The FCPR is an ideal investment vehicle from the point of view of investment
costs since it allows strict control of management costs (defined precisely in
the fund's rules and by-laws) that do not require specific pre-investment resources
(preliminary research reports, audits, etc.)
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