The key points of private equity

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Private equity: an increasingly attractive unlisted asset class

Historically reserved for institutional clients, private equity, also known as private equity, is the investment of capital in unlisted companies. These investments are made through funds managed by management companies approved by a regulatory authority, in France the Autorité des marchés financiers (AMF).

In recent years, private equity has become an increasingly attractive asset class for individual investors looking for investment opportunities, due to the profitability and associated performance that are uncorrelated with the financial markets.

In addition to short-term illiquidity, there are a number of specific features associated with this asset class:

• Outperformance relative to financial markets;
• Smooth calls on funds over the first 5 to 6 years;
• First distributions in year 3 or 4;
• High risk of capital loss.

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Private equity supports unlisted companies

Private equity is a form of equity financing for unlisted companies, generally SMEs or ETIs in France, in order to finance their development. The investment teams of management companies play an active role in the development and value creation of these companies, supporting the management team.

These equity investments can be made at different stages of a company's maturity.

Private equity can be broken down into different strategies, depending on the company's life cycle:

• Innovation Capital: financing start-ups or companies in the early stages of development
• Expansion Capital: financing companies that have reached break-even point and are generating profits. Funds are used to increase production capacity, expand the sales force, develop new products and services, conquer new international markets, etc.
• Capital Transmission / LBO (Leverage Buy Out): acquisition of existing companies by a team of financial and management investors from within or outside the company, using leverage.
• Turnaround capital: financing companies in difficulty. private-equity-cycle-de-vie-entreprise.png

Private equity is a fundamental and indispensable vehicle for financing a company's life cycle, often complementing bank financing. Generally speaking, this asset class finances the real economy and supports the economic fabric of French territories by creating jobs and actively participating in the economic development of the SMEs and ETIs financed, while improving their social and environmental responsibility.

By helping companies deploy their strategy, our investment teams benefit from the increased value of the companies they finance, and create value for their investors. This value creation and associated performance is uncorrelated with that of the financial markets.

Private equity means taking the time to invest in a diversified range of business sectors and in a wide choice of growth companies, in order to benefit from high-performance returns.

Long an integral part of institutional investment strategies, private equity has become an asset class in its own right for private investors. In return for taking on a certain amount of risk and an investment horizon of 8 to 12 years, it enables investors to combine diversification with the potential for high returns.

Over 10 years, French private equity continues to outperform other major asset classes.

The life cycle of a private equity fund determines investor cash flow

The operation of a private equity fund follows a precise lifecycle, divided into several stages that have a direct impact on investment cash flows.

The operation of a fund investing in unlisted assets follows a precise lifecycle, divided into several stages with a direct impact on the investment's cash flows.

The amount committed to a fund investing in unlisted assets is drawn down progressively over the investment period. These successive calls for funds are used to finance the fund's investments and expenses.

At the end of the investment period, the first investments are sold. These sales free up cash, which is then distributed to investors as the fund matures. So, although the lifespan of investment funds is between 8 and 12 years, the period of unavailability of committed sums is generally shorter.

However, for investors wishing to sell their units before maturity, it is possible to sell units held in an investment fund over-the-counter to another investor wishing to acquire them. This is known as the secondary market.

At Private Corner, our aim is to make it easier for you to keep track of your private equity clients' investments, by offering you the option of direct debit for calls for funds, and by providing you with a portal for simple, continuous access to information.

Are you a private investor looking for an attractive investment opportunity? Or are you a private banking professional wishing to invest in unlisted investment funds on behalf of your private client? If so, please do not hesitate to contact us:

Private Corner, an independent management company dedicated to institutionalizing access to private equity;

Address: 161 Rue du Faubourg Saint-Honoré, 75008 Paris. Telephone: 0033 1 83 75 66 95. Mail: contact@private-corner.eu.