Private equity may be forced on French insurers

The prospect of French institutions being forced to invest a percentage of their funds in unlisted companies has been brought a step closer after a surprise vote in the Senate.

The Senate, which forms part of the French Parliament, has given approval to a measure designed to ensure that some institutions commit a minimum percentage of their funds to private equity.  

The vote approved a 2004 budget amendment by senator Philippe Adinot that life insurance companies in the country should invest 1.5 per cent of total assets in unlisted companies next year, rising to 5 per cent in 2007.

But the proposal still has a significant hurdle to overcome in the form of a select committee of the National Assembly, which has the right to reject amendments suggested by the Senate. With the French Government understood to be against compelling institutions to invest in private equity, the chances of the amendment succeeding are thought to be slim. A decision is due to be taken by the end of the year.

A spokesman for the French Private Equity Association (AFIC) expressed his ‘hope’ that the amendment would succeed and said AFIC was currently putting its case to both the French Treasury and the French Insurance Association (Fédération Française des Sociétés d’Assurance).

By 2007, the measure would mean around E4bn extra being channelled into French private equity – a significant boost given that the industry raised a total of E4.8bn from all sources last year. “It would definitely be welcomed by the industry, especially those in the technology space bearing in mind how difficult it is for them to raise funds at the moment,” said Dominique Peninon, managing partner of Paris-based fund of funds Access Capital Partners.

But he questioned whether the new funds would find their way into small technology companies rather than buyout firms, which already receive the vast majority of total funding. In the first six months of 2003, just five large buyouts accounted for 43 per cent of the total E1.7bn invested in 730 French transactions, according to figures from AFIC and PricewaterhouseCoopers.   

Compelling institutional investors to commit to private equity rather than leaving it to their discretion would be an unprecedented move. John Mackie, chief executive of the British Venture Capital Association (BVCA), said the amendment was ‘ a bolt out of the blue’. He added: “On a number of occasions, we have said compulsion is not appropriate. In part that is an emotional response – we don’t want people to invest because they are obliged to, we want them to do so because they can see private equity delivers superior performance.”