Private Equity is an investment approach that enables companies to grow and move beyond traditional financing methods. In return, investors benefit from potentially high returns and contribute to the competitiveness of innovative companies while financing the economy of tomorrow
Private Equity, or capital investment, is a form of investment that consists of financing the growth, transformation or turnaround of unlisted companies.
These companies can be high-potential start-ups (venture capital), companies in a growth phase (growth capital), or more mature companies seeking financing to restructure or expand.
Investing in Private Equity means holding a stake in these companies, with the objective of realising a capital gain upon selling the shares. While private returns can be high, this type of investment carries risks related to diversification and liquidity.
Investing in unlisted assets involves a risk of capital loss. The products presented are closed-ended funds, illiquid by nature, and subject to currency risk. Past performance is not indicative of future performance, and target returns are not guaranteed.
The functioning of Private Equity rests on two pillars: the parties involved in the operation, and the investment process itself.
General Partners (GPs) and Limited Partners (LPs) are the main players in private equity. Portfolio management companies, also known as General Partners (GPs), occupy a central position in the Private Equity ecosystem. They are responsible both for raising funds from investors, known as Limited Partners (LPs), and for the active management of these assets.
Their mission is to identify, select and invest in unlisted companies with strong growth potential. They then support these companies in their development, with the goal of creating value before exiting the investments. This process generates returns for their investors and contributes to the dynamism of the private market. Investors, known as Limited Partners (LPs), are the main contributors of capital to Private Equity funds.
They entrust the management of these funds to General Partners (GPs), who are responsible for the selection, investment and active management of portfolio companies. LPs generally take a passive stance in fund management. They do not intervene in operational or strategic investment decisions, trusting in the GPs' expertise to optimise the performance of their invested capital.
It is possible to invest in Private Equity in two different ways:
1- By participating directly in one or more companies
2- By investing through a fund that holds a multitude of stakes
There are various investment fund structures: FCPR (risk-based collective investment fund), FCPI, FIP, FPCI — fiscal or non-fiscal (professional private equity funds). The tax treatment for investors varies depending on the investment vehicle, and we recommend factoring this into the decision-making process. We also note that this guide does not constitute tax advice; each investor is encouraged to consult their tax lawyer or wealth management advisor to assess the implications based on their personal situation and the structure used for the investment.
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The FCPR is a fund accessible to individual and institutional investors, which must allocate at least 50% of its assets to unlisted companies. It supports growing companies while diversifying the portfolio.
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The FPCI is an investment vehicle reserved for professional investors to invest in unlisted companies. It enables dynamic and diversified asset management with a long-term investment horizon.
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The FCPI is designed to finance innovative companies, particularly technology SMEs or high-growth-potential companies. It must invest at least 70% of its assets in these companies, supporting their development.
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The SLP is a flexible structure, inspired by Anglo-Saxon models, that allows professional investors to participate in Private Equity operations with great management freedom. It promotes flexibility in the organisation and management of investments.
Targeting young, innovative companies with high development potential.
Investors or investment funds enter the capital of these companies, which receive funds to finance their activity and growth. For investors, the risk of capital loss is significant. They therefore expect high returns from the companies in which they hold a stake.
Venture Capital involves investing in start-ups or innovative companies. This type of investment is risky but can generate high returns, particularly for those who manage to identify future market leaders. Venture Capital is often associated with business angels wishing to support promising projects.
Targeting existing, relatively mature companies that have already reached profitability.
The goal of these companies is to raise capital to continue their growth or conquer new markets.
This strategy consists of investing in a company as a minority shareholder, alongside a fund that will hold a majority stake.
Co-investment enables excellent diversification through specialist managers, without diluting performance, thanks to a streamlined fee structure and excellent timing.
Targeting distressed companies seeking a recovery path.
The objective of this type of private equity is to provide the capital and human resources needed to help the company exit its difficult situation, including financing its recovery plan and partially clearing its debt.
The objective is to provide capital to companies whose majority shareholders wish to exit, whether fully or partially. Here too, the companies involved are already mature.
An LBO (Leveraged Buy-Out) combines equity financing (from investors) with debt (bank loan) to transfer ownership of the company to new owners, using the company's borrowing capacity to fund the acquisition.
Three possible options:
The Secondary Strategy involves funds providing liquidity solutions to institutional investors by buying out their stakes in funds, or acquiring existing company portfolios alongside fund managers ("continuation funds").
Secondary is a compelling strategy for individual investors as it offers strong resilience and significantly reduced product risk compared to "Primary" Private Equity, thanks to:
Institutional investors such as pension funds, insurance companies and banks are the main players in private equity. They have significant financial resources and can therefore commit considerable amounts to Private Equity funds.
Access to Private Equity is not limited to institutional investors. Individual investors can now also invest, thanks to investment vehicles such as FCPR, FPCI, FCPI, or FIP, through life insurance policies or securities accounts. With an offer that grows month by month, the need for selection for private clients is essential, and we believe it is strongly preferable to subscribe through a specialist who can identify the firms capable of generating returns over the long term
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There are several major strategies in Private Equity. Added to these are numerous sub-strategies, as funds are generally specialised along certain axes:
- geography,
- target company size,
- sector,
- maturity stage, etc.
For example: an investor wishing to invest in growth capital (growth capital) by investing in mid-cap companies in the European healthcare sector. They would select a fund that precisely meets these criteria. In total, there are hundreds of possible combinations in Private Equity. The relevance of each approach will depend on both the macroeconomic context and the investor's specific objectives.
Once the investment strategy is defined, the next step is to choose the fund(s) capable of executing it with excellence. This is a key process, as with the same strategy, performance can vary significantly from one fund to another. Indeed, for the same investment thesis (e.g. growth capital in European healthcare), there may be dozens or even hundreds of funds available on the market.
Not all funds are equal. Selection must therefore be based on a rigorous analysis of several criteria:
At Opale Capital, we place major importance on this phase. Each fund offered is the result of a rigorous selection process, based on a dual expertise: that of the Opale Capital team, and that of Tikehau Capital, a globally recognised alternative asset manager.
After identifying the strategy and selecting the appropriate fund(s), the investor moves to the commitment phase. This involves subscribing an investment amount to the fund, without the full capital being called immediately.
Key steps in the process:
Private capital investors invest in Private Equity primarily to realise capital gains at exit. The private equity market records sustained growth, with relatively high performance. It remains a high-performing and resilient investment over the long term.
According to France Invest, at end-2022, the net performance of French private equity was as follows:
Private equity is a long-term investment that generally spans a period of 6 to 10 years. Investors must therefore be prepared to lock up their capital for an extended period. This time frame is necessary to allow financed companies to develop and create value.
Exit options include selling shares to another investor, an IPO, or a trade sale to an industrial player. The choice of exit strategy depends on market conditions and the performance of the financed company.
Private equity funds are generally closed for several years (6–10 years on average), with no possibility of early redemption. As with any equity investment, there is a risk of partial or total loss of the invested capital.
Often high minimum investment
Investments are often reserved for sophisticated investors, with significant minimum tickets (€100k at Opale Capital).
Limited visibility on underlying assets
Unlike listed equities, information on portfolio companies is not continuously available — it is updated on a regular basis (quarterly/semi-annually).
Like any investment capable of generating substantial returns, investing in Private Equity also carries certain risks to be taken into account. Among the main ones is the risk of capital loss, as the growth of financed companies is never guaranteed. In the event of bankruptcy, the investor may lose all or part of their initial investment.
Furthermore, past performance is no guarantee of future results. Although Private Equity has delivered excellent returns in recent years, it is not certain that yields will remain as attractive going forward. In the event of a market downturn, returns could decline. Additionally, private equity is a long-term, illiquid investment. Investors must be prepared to lock up their capital for a period often exceeding five years. Moreover, there is no secondary market that allows easy resale of securities before maturity.
Unlisted companies are the primary beneficiaries of Private Equity investments. Whether in a growth, development or turnaround phase, they seek to raise capital to finance their strategic projects. Resorting to Private Equity offers them an alternative to traditional stock markets, while benefiting from personalised support aimed at optimising their development potential.
The history of private equity, as mentioned above, has seen several high points and more difficult periods. But what future can we envision for this investment approach?
Private market assets have a low correlation with stock markets, which remain highly volatile and subject to increased turbulence. Diversifying towards these assets would reduce a portfolio's dependence on global equity markets. Moreover, in a context of economic and political uncertainty, private markets could offer opportunities, particularly in resilient or contrarian segments, often less affected by the volatility and instability of traditional financial markets.
Traditionally reserved for institutional investors, Private Equity has gradually become more accessible to individual investors, in particular through:
- Specialist platforms: Online platforms have emerged, offering Private Equity investment solutions, thereby facilitating access to this asset class.
- Dedicated funds: Some Portfolio Management Companies now offer funds specifically designed for individual investors, with investment thresholds adapted to their profiles.
- Assurance-Vie and structured products: Private Equity is now finding an increasing place in Assurance-Vie offerings, thus giving individual investors the possibility of accessing these assets while benefiting from a degree of flexibility in terms of liquidity and tax advantages.
Capital invested in private equity is generally locked up for an extended period, often between 8 and 12 years, with no possibility of early redemption before the fund reaches maturity. This type of investment therefore requires rigorous wealth management, as only amounts not needed in the short or medium term should be committed. It is essential to adopt a wealth management strategy suited to this long investment horizon, in order to avoid financial stress in the event of an unexpected need or emergency, and to ensure an allocation consistent with one's overall financial objectives.
It is important to recognise that not all Private Equity funds are equal in terms of performance, management or growth potential. In order to maximise your chances of success, it is crucial to carry out a rigorous selection based on several key criteria:
- The experience and track record of the management team: The competence, stability and past success of managers are essential indicators. A team with a long track record and solid history in managing similar funds or in the chosen investment sector is generally better equipped to navigate economic cycles and identify high-value opportunities.
- The investment strategy: Analyse in detail the Private Equity segment targeted (Venture Capital, Growth Capital, Turnaround Capital...), the preferred sectors, and the geographies covered. A well-defined strategy consistent with your investment objectives ensures a better fit with your profile and investment horizon.
- Historical performance of previous vintages: While past performance does not guarantee future results, it nonetheless provides an indication of the fund's ability to generate value, manage its investments effectively and meet its return objectives.
- The ability to create value in portfolio companies: A high-performing fund is also characterised by its ability to actively support its companies in their development, providing operational, strategic or financial levers. The quality of active management is a determining factor in maximising growth and profitability.
- Sector and operational network: The strength of the manager's network — their contacts, partners, investors and influence in the ecosystem — is a major asset for sourcing the best investment opportunities, negotiating effectively and supporting the growth of portfolio companies.
- Management and performance fees: Finally, it is essential to assess the cost structure attached to the fund, including annual management fees and the performance fee (Carried Interest). Excessive fees can significantly erode potential gains, hence the importance of assessing their fairness relative to expected performance.
In summary, selecting a Private Equity fund should be based on a thorough analysis of these criteria to identify high-potential opportunities aligned with your investor profile and long-term objectives.
To maximise the performance of Private Equity investments, it is crucial to adopt an approach combining sound investment strategies with judicious tax solutions. This synergy not only enhances return potential but also optimises the tax management of realised gains.
Diversification is one of the fundamental pillars for reducing volatility and mitigating the risks inherent in any Private Equity investment. By investing in a varied range of companies, sectors and geographies, investors increase their chances of capturing profitable opportunities, while limiting the potentially negative impact of a specific sector or market in difficulty.
Moreover, well-orchestrated diversification also facilitates tax optimisation. By spreading investments across different funds, structures or asset classes, it is possible to distribute returns, capital gains or losses, which allows the overall tax impact to be smoothed. It also provides the opportunity to exploit various tax strategies, such as the use of tax-advantaged investment vehicles, tax deferral or loss offsetting, in order to increase net after-tax profitability.
OPALE CAPITAL SAS, a French simplified joint-stock company (société par actions simplifiée), with a share capital of €4,659,164, registered office at 32, rue de Monceau 75008 Paris, registered with the Paris Trade and Companies Register under number 921 277 208, approved by the Autorité des Marchés Financiers and registered with the AMF as a portfolio management company under number GP-20240010.
