Vive French private equity! That was what Private Equity International took away from the International Private Equity Market conference in Cannes at the end of January.
Europe’s second-largest private equity market is shimmering with optimism under a pro-business president and expects to benefit from capital flowing out of the UK in light of Brexit.
Whereas around half the capital raised in the UK is invested in Britain, more than 90 percent of French private equity fundraising is invested at home, Olivier Millet, president of industry body France Invest, told PEI. If fundraising can reach its €20 billion by 2020 target, it will become the largest market in Europe, he said.
Last year was a strong one for French private equity. Funds solely focused on the country raised almost $4 billion in 2017, the highest amount since PEI began keeping records in 2008, while those located in France raised €14.4 billion, 25 percent of the total capital raised by Western Europe-focused funds. This does not include pan-European or global funds headquartered elsewhere that earmark a proportion of their capital for France.
In 2018, Equistone Partners Europe is expected to hold a first and final close on its sixth buyout fund – targeting France, Germany, Switzerland and the UK – on as much as €3 billion, while PAI Partners is understood to have raised €5 billion for its latest offering.
Adam Turtle, founding partner of placement agent Rede Partners, told PEI last year the continuing fallout from Brexit means “we’re likely to see a rebound of continental Europe in contrast with [the UK]”.
On the dealmaking front, France is still way off the top spot – securely held by the UK – but it did see a rise in the value of deals completed. In 2017, there were 92 deals worth €14.1 billion versus 93 deals worth €11.7 billion in 2016, according to data from CMBOR, Investec Specialist Bank and Equistone. Big deals include Advent International’s €2.4 billion buyout of identification and digital security technologies business OT-Morpho.
When it comes to local investors, there is still room to grow. Allianz France, one of the country’s largest insurers, has just 3 percent of its €65.9 billion exposed to alternatives, while pension fund Fonds de Reserve pour les Retraites has a mere 1.3 percent of its €34.5 billion invested in the asset class.
Speaking at the conference, Jean-François Boulier, chairman of AF2i which represents French institutional investors, outlined several ways private equity firms – local and global – can encourage more limited partner participation in the asset class. GPs should simplify language so that professionals at French pension funds or caisses – state-backed or mutual investment arms – can better understand the terms used in private equity.
“What you’re doing is great, so why hide [it] with complex denominations?” Boulier said. “Be simple, and it will work greatly for everyone.”
GPs should also make it easier for potential LPs to compare the performance of their funds against other asset classes. Keeping fees down will also attract more LPs.
“Talent is very important, so I’m not the one to push for passive investment,” Boulier added.
“You have to be active, and active means expertise, hard work, but certainly that is something you have to develop at a reasonable cost.”