France's new SLP fund structure to entice foreign LPs

The Société de Libre Partenariat (SLP) fund structure was officially adopted by the French parliament in early July, and appears to address many grievances fund managers had with the previous fonds commun de placement structures. The main objection to the old model was that the vehicles were not recognised by tax treaties outside France, whereas the cross-border SLP will be acknowledged as fiscally transparent in 130 countries and will simultaneously do away with double-taxation woes.

In addition, the SLP aims to restore the balance between GPs and LPs, as the former FCPR structure was perceived to favour fund managers. "The SLP will provide foreign investors with an additional type of governance in France," says Industries & Finances Partenaires (I&F) partner Sophie Pourquéry. "The point is to replicate the structures they were familiar with in Luxembourg or the Anglo-Saxon countries."

Top it all with a separate legal personality, added flexibility to enter investment areas including real estate, infrastructure and debt, and it soon becomes apparent the French regulator is eager to ensure the country keeps up with modifications recently made to limited partnership structures in Luxembourg, the UK and the Netherlands.

Endangered species
While undoubtedly a positive development for French private equity, there is a question mark over how effective the SLP will be in overturning years of muted foreign investment. Local players exercise caution: "It is true measures like these will help improve France's image among foreign investors," says LBO France partner Vincent Briançon. "However, LPs are pragmatic and will withhold their capital until they feel the economy is back on track at the macro level."

According to Apax France partner Bertrand Pivin, securing foreign investment remains a crucial lifeline for French GPs, as domestic LPs have become increasingly elusive. "French sources of capital became rarer after the crisis, when insurers and banks pulled the plug on private equity investments. Deprived of that support, smaller funds looked outside France, but those without previous contacts struggle to get noticed. SLP does little to change that," he says. Survival has been easier for those GPs with existing ties to investors abroad, as shown by Apax France's and Astorg's respective 90% and 95% foreign LP bases, or firms with a 50:50 ratio such as LBO France and I&F.

I&F's most recent fundraising effort is a clear reflection of the long and winding road smaller GPs have had to traverse in the post-crisis environment. The GP's latest fund got off to a wobbly start in June 2012, just weeks after François Hollande assumed the presidency following a campaign in which the finance sector was singled out as the enemy.

Fundraising slowly picked up throughout 2013, as some LP uncertainty around tax issues for buyout vehicles dissipated. The fund's fortunes turned around fully in 2014, when the buy-and-build specialist announced a €135m close, €10m more than its initial target. "We experienced an avalanche of commitments," says Pourquéry. "Capital seems on the way back to France."

Whether foreign investors are back for good or just temporarily, the structural dearth of national LPs remains problematic for the French fundraising industry. However, a possible lifeline could come from life insurers, historically not strong supporters of the industry due to both tradition and regulation. The local life insurance sector came under the spotlight following the government's 2013 announcement of plans to channel €100bn in savings towards businesses. Although supportive of the changes, French private equity association Afic urged policymakers to ensure part of the funds would be earmarked for non-listed companies.

An unquote" source has revealed conversations are underway in the country to bring this scenario closer. "Should it be confirmed, this would represent an enormous amount of capital for private equity in France. But it will require a clear will by the government to happen," the source said, highlighting the long road ahead for the relations between the French regulator and the local private equity industry.

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