Afic calls for more government support

José Rojo
28 October 2015

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Despite reforms boosting French private equity activity in recent months, industry association chair Michel Chabanel believes policy makers could be doing more. José Rojo reports

Recent data from French industry body Afic shows that foreign LPs accounted for 40% of all capital raised by French funds between 2012 and 2014. According to the figures, international investors returned to the market in 2011, when foreign investment provided 52% of commitments, doubling 2011's rate of 26%. Since 2012, the figure has remained in the 40-45% region.

The return of foreign LPs comes as French private equity welcomes a new fund structure: the Société de Libre Partenariat (SLP), which is closer to its Anglo-Saxon counterparts than the former FCPR structure in terms of fiscal transparency, legal personality and investment flexibility. "For French private equity to stay attractive, it was necessary to provide investors and fund managers with an efficient fund structure, as the existing set up was becoming obsolete," says Afic president Michel Chabanel. "Although it is not the ultimate panacea, the SLP will add to the competitive advantages of French private equity."

Stable and able
The efforts by the French government to bring fund structures up to date seem to be working, with a number of GPs looking to launch new SLPs. However, Chabanel believes French private equity could benefit from increased support from policymakers: "We see initiatives in the right direction but France's enduring image problems and perceived policy uncertainties are counterproductive. We are asking policy makers for a clear and straightforward roadmap that truly makes our industry more competitive."

Afic's caution resonates with the views voiced by French GPs to unquote" in July. At the time, a number were sceptical as to whether SLPs or any other policy change would compensate for France's lingering political and macroeconomic woes.

According to Agnès Nahum, managing partner at Access Capital Partners and chair of Afic's investor relations committee, France's relatively static economic growth is not necessarily a weakness; rather, it could work in private equity's favour. "We have seen an increase in the number of Asian investors expressing strong interest in France. They are keen on the stability in our regulatory framework and the maturity of the private equity landscape. France might not grow as quickly as the emergent markets, but we are far less volatile," says Nahum.

French private equity managers have learned to drive strong performance in a stifled environment, says Nahum. Companies backed by the industry appear to have gone against the general trend in France in the past few years. According to Afic data, turnover in portfolio companies has increased from 100 base points in 2009 to 120.7 in 2013, whereas nominal GDP growth for the whole of France has only climbed to 109 points.

While foreign LPs are increasing their allocation to France, local counterparts are struggling due to regulatory constraints. The post-crisis years saw banks and insurance companies pull out of the industry, adding to the existing shortage of pension funds in the country.

Life and soul
However, confidence in life insurers is growing among local players. In 2013, French president François Hollande announced plans to channel €100bn of savings towards businesses, which could mean more allocations to small and medium-sized GPs.

However, life insurers will need the assistance of policymakers if they are to become a serious contender. According to Chabanel: "National capital sources are somewhat restricted in France. Any measures that alleviate their constraints as private equity backers will contribute to reinforcing a stronger industry."

Afic's Nahum echoes this view and underlines the disincentive effect of some regulatory hurdles: "Under the Solvency II framework, capital ratios for insurers investing in private equity were lowered from 49% to 39%. However, the constraint remains relatively high and hampers further allocations to the asset class. Currently, significant communication efforts are being directed towards the French government so that these arguments are heard."

Once that obstacle is overcome, there is every reason to believe insurers will return to private equity, says Nahum.