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Investments like no other

The difference between private markets and the listed markets so familiar to investors is not limited to lack of liquidity. The illiquidity of unlisted investments proves to be an ally for this asset class, which must imperatively take a long-term view. As a general rule, sums invested in unlisted investments should be deployed over a period of 4 to 5 years following the investment decision. This period of time smoothes out the entry points, allowing several economic cycles to be experienced within a single vintage. What might seem trivial for an institutional investor is fundamental for an individual. In addition to selecting and providing access to management teams with an institutional dimension that were previously inaccessible, and which have demonstrated their ability to replicate top-quartile performance levels regardless of economic cycles, private equity platforms must provide private clients and their advisors with transparency, monitoring and comprehensive, regular reporting at a fair price. In this way, the majority of the value created by the management teams can be preserved. This “fair price” for unlisted assets aimed at high-net-worth private clients is now possible, since digital technology makes it possible to catalyze the human element, which is now only involved in high value-added tasks.

The need to educate investors

Rather than a democratization of the unlisted asset class, it is the institutionalization of practices towards retail investors that seems necessary for a clientele of well-informed investors with sufficient financial resources to invest a minimum of 100,000 euros per fund.

For a more “retail” clientele, there are several solutions: from investment in FCPRs with lower investment minimums and called up in one or more instalments, to so-called “evergreen” open-ended funds. In the case of the latter, instead of following the classic cycle of private equity funds (fundraising, investment phase, distribution phase, maturity date), they have a 99-year lifespan and remain permanently open to subscriptions and redemptions. These strategies are capable of providing liquidity to holders, notably by maintaining a liquid pocket that can be rapidly mobilized to meet holders' redemption requests.

Care must be taken, however, to ensure that these various facilities do not extinguish certain performance drivers or generate excessive costs. The case of FCPI, FIP and ISF holding funds, which were the first private equity vehicles accessible to the general public, should not be forgotten: very often, the quality of the underlying investments and the high level of fees have had a negative impact on investors' final performance, despite the associated tax benefits.

After fund selection, the most important thing is support

When it comes to unlisted investments, the notion of support is crucial, at every level. First of all, the quality of an unlisted asset manager lies not only in his sagacity in selecting the best companies, but also in his ability to accompany entrepreneurs in their growth (in the conquest of new markets or external growth operations) and to replicate this methodology from vintage to vintage.

Investment advisors and their clients need partners with sufficiently detailed knowledge of private markets to help them effectively select the best strategies, and above all to enable them to build a portfolio of private assets in line with their existing wealth, their investment horizon and their appetite for risk in particular. Indeed, there is a great deal of added value in the ability to identify funds in the process of being raised, to understand in detail in which type of unlisted companies they are going to invest (sectors, geographies, company sizes, stage of development of the companies financed) and then to assess the relevance of the strategies proposed to their clients in perfect adequacy with each of them. The devil is sometimes in the detail, and some management teams are likely to open up to private clients for the wrong reasons, such as difficulties in raising funds from institutional investors and large families. The analysis of a market expert is essential to make the right selections.

Above all, it is essential for the end-investor to enlist the support of his financial advisor to build up a balanced, diversified allocation of unlisted assets over the long term. As the “family doctor” of wealth management, it is the advisor alone who has a global vision of the assets, projects, personal and family situation, and therefore the needs, of each of his clients. All these elements are essential in assessing the capacity to bear risk, the type of assets to integrate and the proportion of wealth that can be dedicated to illiquid assets.

While unlisted investments have been much in the news of late, the way in which they are integrated into an overall allocation is essential if we are to achieve a result that lives up to the promise of this singular and complex asset class.