International investors help replenish French coffers

Greg Gille
09 May 2014

Tweet
Facebook
LinkedIn
Google plus
Send to

Despite talk of international investors abandoning the French private equity market, this particular group of LPs provided nearly half of the funds raised in the country last year. Greg Gille reports

The irony will not be lost on a French private equity industry already obsessed with the way in which the country is perceived abroad: although most of the local GPs unquote" spoke to in 2013 stressed how tough it remains to convince international investors to back their funds, foreign LPs contributed to the best fundraising year for France in the post-crisis era, according to recent research by trade body Afic and accountancy firm Grant Thornton.

But although the headline figure is impressive compared with previous years (€8.2bn raised by French GPs, against €5bn in 2012 and a €5.7bn annual average between 2009 and 2013), it must be noted that the 2013 total was significantly boosted by Ardian's fundraising efforts. The Axa Private Equity spinout closed two sizable vehicles in 2013, including its €2.4bn LBO Fund V flagship vehicle, which on its own already accounts for nearly a third of the 2013 fundraising total. The capital raised by PAI partners towards the first close of its latest vehicle – PAI Europe VI reached €1.4bn in the first days of 2014 – is also likely to have given a significant boost to last year's fundraising figures.

This uptick in fundraising was also driven by a decent haul in the mid-market, with vehicles in the €200m-1bn range bringing in a total of €2.57bn – around a third of the overall capital raised by French GPs in 2013 and nearly double their contribution to the 2012 total. GPs that successfully closed in this segment last year include Capzanine, which raised €350m for its latest mezzanine vehicle; and Montefiore Investment, which closed Montefiore III on its €240m hard-cap.

The fact that this handful of successful closes in the mid- and large-cap segment had such an impact means the total fundraising figure for 2013 needs to be taken with a pinch of salt. Managers of smaller vehicles did not fare quite so well, with fewer funds in the < €200m segment (both in terms of numbers of vehicles and overall commitments) raised last year compared with 2012.

Further afield
But the real cause for celebration lies elsewhere. Despite much talk of international investors fleeing a country afflicted by punitive tax levels and lacklustre growth prospects, foreign LPs contributed to nearly half (45%) of the funds raised last year – a figure significantly higher than that seen in 2012 (30%) and even in the 2006-08 period (39% yearly average).

Furthermore, this historically high proportion cannot be solely attributed to those European investors more likely to notice and understand the strengths of French private equity. Non-European LPs poured €1.7bn into French coffers last year – a figure almost on par with the amount provided by investors from the continent, and almost three times that recorded in 2012 (€526m).

Although these figures seem to highlight the renewed attractiveness of French GPs, looking more closely at the stats reveals an important caveat: international investors are focusing almost exclusively on the mid- and large-cap segments. The 69 GPs that raised vehicles amounting to less than €200m only attracted €612m from non-French investors – just a fifth of the overall capital raised in that segment. Meanwhile, the six managers that raised vehicles in excess of €200m drew in more than half of their overall commitments (€3bn out of €5.2bn) from foreign LPs. Corroborating this trend, PAI was understood to have attracted significant interest from US investors at the time of PAI Europe VI's first close.

This partly explains the polarised fundraising success of managers sitting on either side of the €200m fence last year. It must be noted that international appeal is not necessarily that clear-cut when looking at individual managers – proof that LPs will, more often than not, value quality over quantity. Buy-and-build specialist Industries & Finances Partenaires, for instance, held the final close of its third fund, Industrie & Finance Investissements 3 on €135m at the beginning of April – LPs based outside France provided 60% of the vehicle's commitments.

Meanwhile, the overwhelming weight of international investors in the LP base of larger vehicles could also come to play a decisive role in the long-awaited shake-up of the French GP landscape: managers eager to survive the inevitable cull had better be ready to rack up the air miles.