After a difficult few years, the French finally have some cause for optimism at the moment. At press time, its football team (aka Les Bleus) was making serene progress at the World Cup in Brazil. Meanwhile, it has become clear over the last 12 months or so that Francois Hollande’s tax hikes will not be quite as deleterious as investors previously feared. And best of all: according to a new study, France’s private equity industry has delivered some of the best returns in the world in the last decade.
French private equity firms outperformed their peers in all major European economies and the US over the 10 years from 2004 to 2013, according to a study by the French Private Equity Association (AFIC) and EY. French GPs recorded an average IRR of 10.7 percent, while the equivalent figures for the US and Europe were 9.5 percent and 8.4 percent respectively.
What about its closest peers? French GPs’ average returns were similar to UK-based managers – who returned an average IRR of 10.4 percent – but well ahead of their German counterparts, who delivered an average IRR of 8.8 percent.
“This outperformance looks paradoxical, since France does definitely not have the image of a business-friendly place,” admitted Michel Chabanel, chairman of AFIC, in a statement. But he suggested this outperformance was due to “the bubbling entrepreneurial culture … In no other European country are as many new businesses formed every day as in France.”
In fact, the outcome of this study is not surprising, according to Gilles Taldu, a partner at LBO France. “France is a very resilient economy and there are plenty of good businesses – GPs in France can cherry pick the good investments.” What’s more, there is less leverage used in the French market than in other Anglo-Saxon countries, he adds. “I think this, combined with GDP resilience, means that private equity portfolios are more robust and have been performing better as a result.”
“In the UK and France, the private equity market tends [to lean] more towards entrepreneurs who set up businesses 10 years ago and are now looking for capital to grow internationally,” says Francesco di Valmarana, a partner at Pantheon. “In Germany, the private equity market is largely comprised of the traditional Mittlestand companies that have been there for many generations. France is a core part of our European private equity strategy because we think it has a very strong entrepreneurial culture.”
But while France remains an important market within Europe, doing deals there has not been easy for GPs in recent years, says Paul Newsome, executive director and head of investment selection and monitoring at Unigestion. “Recently, there have been a lot of secondary buyouts in France. This may have been great for boosting overall returns in the last 10 years, but doesn’t say a lot about the overall health of the private equity market.”
“While we do look at the different markets, for us it’s more about picking the right managers. When we select managers in Europe, the team and the strategy is more important than the country in which the manager operates,” he adds.
Christophe Bavière, chief executive officer of Paris-based Idinvest Partners, agrees with this approach. “France is a great market but it’s more about finding the local champions within Europe. This could be in France, but in other markets as well.”