How liquidity can attract more French LPs to private equity

A vibrant secondaries market is one of four ways to help attract more LP capital to the asset class, according to the head of body which represents French institutional investors.

Fundraising for French private equity in 2017 is expected to eclipse the record €14.7 billion raised the previous year, according to industry body France Invest, a positive sign for Europe’s second-largest private equity market.

There is still room to grow. Allianz France, one of the country’s largest insurers, has just 3 percent of its €65.9 billion exposed to alternatives, while pension fund Fonds de Reserve pour les Retraites has a mere 1.3 percent of its €34.5 billion exposed to the asset class.

Speaking at the International Private Equity Market conference in Cannes last week, Jean-François Boulier, chairman of Association Française des Investisseurs Institutionnels, which represents French institutional investors, outlined four ways – including increasing liquidity via the secondaries market – that private equity firms can encourage more LP participation in the asset class.

Increase liquidity

The global financial crisis of 2007-08 should remind industry professionals of the importance of liquidity, according to Boulier. 

“For long-term investors liquidity might not be such a problem, but it has to be tackled, understood, measured and managed,” Boulier said. “Any solution to help liquidity in the market, the secondary market, the variety of new services, could be delivered for that.”

Simplify language

Investment professionals at French pension funds or caisses – state-backed or mutual investment arms – who are responsible for increasing allocations to private equity do not understand many of the terms used in the industry, according to Boulier.

“Please try to simplify the language, please explain in a simple manner what you’re doing. What you’re doing is great, so why hide with complex demoninations?” he said. “Be simple, and it will work greatly for everyone.”

French private equity body L’Association Française des Investisseurs pour la Croissance’s rebranding to France Invest, announced last week, is a perfect example of this, Boulier said.

Make performance comparable

GPs should make it easier for potential LPs to compare the performance of a manager’s funds against other asset classes, which will help investors understand the industry better. Failure to do this can lead to misunderstanding.

“People might be disappointed, and if they’re disappointed they won’t come back”
Jean-François Boulier

“People might be disappointed, and if they’re disappointed they won’t come back,” Boulier said.


Keep fees reasonable

For long-term investors, a 1 percent management fee over 40 years can turn into a hefty chunk of wasted value, and this can deter LPs from investing in the asset class.

“Talent is very important, so I’m not the one to push for passive investment. You have to be active, and active means expertise, hard work, but certainly that is something you have to develop at a reasonable cost,” he said.