Q&A: AFIC's Louis Godron

Greg Gille: What will be the main areas of focus for the association going forward?
Louis Godron: The first major task is to help French private equity overcome the difficulty of raising funds today. Last year was very busy in terms of private equity activity, with €9.7bn invested in French businesses. But at the same time the gap between the amounts invested and raised crept up to a record €3.3bn. This trend has been going for several years now, and the situation is not sustainable – we are currently going through the last of the dry powder accumulated prior to 2008.

Unfortunately we are now way beyond the process of "private equity Darwinism", which would see only the best managers surviving a heavily bifurcated market. Competent, experienced and reputable teams are unable to raise new funds due to purely exogenous factors such as regulation and the eurozone crisis. Meanwhile the FCPI and FIP retail funds – which contribute to a large part of smaller venture investments – are understandably struggling to attract investments given the current economic environment.

GG: Fund closes have indeed been scarce for several months now, following a relatively strong first half of 2011. What can be done?
LG: We are working on various ways to redirect French long-term savings towards our funds. Savings are plentiful in France, but unfortunately they are not sufficiently channelled towards investments in unlisted businesses, notably SMEs and start-ups. We need a limited amount of carefully measured state intervention in that regard. Take the Livret A [Ed note: a popular basic savings account in France] or life insurances for instance – surely we could redirect a tiny fraction of this capital (around €300bn and €1,300bn respectively) towards SMEs.

But we also need to show the potential of French private equity to international investors, who already represent more than 50% of the funds raised last year. France is home to thousands of outstanding business projects that deserve to be financed; the country benefits from the combination of an advanced technological environment, a strong pool of qualified and motivated entrepreneurs, and a very stable legal framework that puts great emphasis on the protection of investors.

The performance of French private equity is also attractive. Performance figures for LBO and growth capital funds are significantly higher than the European average. In addition, our buyout model is very much geared towards organic growth and social responsibility since our legal framework deters asset stripping and massive layoff plans. Venture performance might be less impressive, but it is currently improving.

GG: You mentioned the emphasis on social responsibility. Private equity is still struggling with the issue of its public image – what are AFIC's plans in that regard?
LG: This is the second area on which we will focus. We need to keep explaining what we do and how we can be useful; we are not here to pretend that private equity can single-handedly save the economy, but to highlight that it serves a real economic purpose.

The vast majority of French private equity practitioners aim to help their portfolio companies develop. We can't be successful if we are unable to drive growth – not only by providing capital, but by actively helping entrepreneurs overcome obstacles and seize opportunities.

This explanation effort definitely needs to be sustained. We might not have done enough in the past in that regard – after all, private equity players saw the positive effects of the industry and believed that these would eventually be recognised. Things turned out a little differently and we are now spending more time on explaining how we operate.

GG: This communication effort is shared by other European associations, including EVCA. Do you plan on working towards stronger cross-border collaboration on this issue?
LG: We clearly have the same concerns and we can join our efforts. That said, not everything can be done on a purely European level. What we can do is liaise with other associations to share best practices, but the best way to promote our industry is to move away from a generic message and delve into specific cases, looking at businesses in particular and letting entrepreneurs speak for themselves.

Our communication efforts might have been too "high-level" and institutional in the past. Showcasing statistics and explaining private equity in broad terms is still important, but it is equally important to have a local MP visit a portfolio company that benefited from the growth capital and guidance provided by investors. When we actually do this, the MPs in question always come away with a much more positive outlook on private equity.

GG: France has undergone significant political changes in the past few weeks, with a new president and a new government now in power. How have the first contacts been going?
LG: We noticed a willingness to listen – that said, there is often a difference between consultations and the actual outcome. But the new government is definitely not conforming to the caricature of an overly dogmatic and ideological team feared by some. They know that they will be under scrutiny given their electoral success and that their margin for error is slim.

AFIC is not here to side with the government or, on the contrary, to be in the opposition. Our only concern is that the French economy gets back on track – it is up to us to put forward solutions to that end.

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