Bank investments in PE down 69%

Last year was a good one for French GPs when it comes to fundraising, as unquote" reported in February. In its study of 2011 PE activity, released today, AFIC indeed reports that the overall capital raised by GPs increased by 28% year-on-year in France - mainly thanks to a few sizeable closings.

Of course, this is still a far cry from the glory days - half of the amount raised in 2008, to be precise. Looking at the source of this capital partly explains why: bank and insurance company contributions to PE fundraising have declined by 69% and 57% respectively between 2008 and 2011. AFIC blames the constricting effect of prudential ratios introduced by Basel III and Solvency II for the sudden drop.

It must however be noted that banks and insurance companies contributed more to PE fundraising in 2011 compared to the previous year: banks committed €901m versus €487m in 2010, while insurers' contributions more than doubled to €971m.

Meanwhile, private investors and family offices remain the largest supporters of private equity in France, with €1.25bn committed last year. But this is down from the €1.5bn seen in 2010, and again noticeably short of the €3bn witnessed in 2008 - contributions from these types of investor have actually been declining steadily for three years running in France.

So who has been fuelling the steady recovery of French PE fundraising since the Lehman crash? Funds-of-funds, pension funds and - in true Gallic fashion - the State. Their contributions have risen by 130%, 213% and 194% respectively since 2008.

Furthermore, the study reveals that foreign investors set their sights on France last year: their commitments increased three-fold compared to 2010, and they now account for half of the funds raised (versus a quarter the previous year). This was particularly noticeable with insurers, 50% of which hailed from outside of France in 2011.

The overall capital raised from French LPs decreased by 20% year-on-year - these investors now account for just 48% of the overall LP base. "It is striking to note that that this [good fundraising] dynamic is driven largely by imported capital," noted AFIC chairman Hervé Schricke. "One might celebrate France's attractiveness, but also regret the fact that French capital is not geared more towards the long term."

Alarm bells ringing for venture

All these contrasting developments highlight the deep and ongoing transformation of the French fundraising market in a post-crisis environment. One in particular is deemed worrisome by AFIC: allocation previsions for venture funds are down by more than a quarter in the 2011 study. In fact, venture FCPR vehicles (funded by corporates and institutional investors) are expected to only attract 4% of all commitments going forward. Says Schricke: "It is very alarming to note that venture capital, which finances young businesses and innovation, is more than ever in danger of being stifled."

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• Topics
• France
• Fundraising
• France
• AFIC