Private equity: risk funds reserved for well-informed investors

Bringing new money to young, emerging SMEs in exchange for a stake in their equity capital, that’s what speculation in the “over the counter” sector (also called “Private Equity”) is all about. This activity, long reserved for the wealthy and investment banks, became available to individuals a few years ago with the creation of specialized funds known as “investment capital”, such as FCPRs (mutual funds of risk), FCPIs (mutual funds of innovation ) and FIP (local investment funds).

WARNING, despite the attractive performance of these products over the past ten years, averaging more than 10% per year, the risks incurred in the short term are very high (many startups risk bankruptcy within 2-3 years). Reserved for experienced investors with an investment horizon of at least 8 or 10 years.

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Subscription

Online brokers distribute these products through their life insurance policies. It is through specialized management companies such as Eiffel IG, 123 IM, NextStage or Inter Invest that you can invest in these funds (from €1,000). It can also be accessed through wealth managers or Internet brokers (Boursorama, Placement-direct, Altaprofits, Linxea, etc.) who distribute these products directly or, more often, through their life insurance policies, knowing that in the latter case the Sum, invested in unquoted securities, limited to 10% of the outstanding contract amount.

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Risk

You will reduce it with FCPR, whose leadership is focused on SMEs in the growth phase. Unlike FCPI and FIP, which invest at least 60% in innovative or regional SMEs, FCPRs have some management flexibility: the law imposes a quota of only 50% of unregistered companies of any type. They are therefore less risky provided you choose funds whose management focus is on growth capital (SMEs in the growth phase) rather than venture capital (SMEs in the creation phase) or working capital (SMEs in distress), two investment methods with more uncertain results.

The station too to commissions deducted on subscription (allowing 4 to 5%, except for passing through life insurance and thus benefiting from a discount, or even eliminating this puncture), but also, above all, on management, which every year take a bite out of the real performance of FCPR: more than 4% per year is too much!

Last tip: to increase the odds in your favor, it is better to diversify your bet on at least three funds.

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The best fund managers record capital gains of more than 25% per year

Performances published for each year are based on a 10-year history. Capital

With a 10-year average performance of 10.2% p.a., the non-listed sector significantly outperforms all other asset classes: +8% for the CAC 40, +5% for real estate and +2% for life insurance in Euros… Attention it’s the same for everyone, because in detail, a quarter of private equity funds are in the red for this period (-1.5% on average).

Therefore, we will only take risks if we accept losses, sometimes significant, and choosing management companies with recognized skills, such as Inter Invest, Eiffel Investment Group or NextStage, whose last funds reached maturity. received a record capital gain of more than 25% per year.

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limitation

Reselling its shares before the scheduled maturity date can be very expensive in penalties. Venture funds have a very specific life cycle. First, you can’t access it whenever you want: the subscription period is limited to one year (sometimes two). The fund is then closed until it is liquidated, which usually happens after about ten years. The profit (or loss) is then distributed among the investors. In the meantime, you should know that it is difficult to return the money (the search for a buyer of his shares may last for years). And the operation can be expensive: up to 5% fine…

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Taxation

After 5 years of holding the shares, the profit is not subject to income tax. While FCPI and FIP offer tax benefits on entry, this is not the case with FCPR. But if the shares are held for at least 5 years, the profit is tax-free and includes only 17.2% of social security contributions (held by the fund and paid directly to the tax authorities).

Take notes: if the subscription is through life insurance, the taxation of that investment applies.