Also known as capital investmentThis involves taking equity investments in unlisted companieswith a duration generally between 5 and 8 years and a 6 to 8% annual yieldfor the best structured products, the returns announced are always net of management fees. You can invest in the capital of companies in a variety of ways;
Different ways to invest
You can invest via a PEA, an SME, directly, viacrowdfunding, a FIP, a FCPI, or even through FPS or club deals. That’s a lot of information, but there are two main ways to invest in private equity: distribution solutions, which generate income, and capitalization solutions, which return capital at the end of the investment and the capital gain generated. Given the specific status of certain private equity investment products, you may be partially or totally exempt from capital gains tax on exit, which has a significant impact on the overall return on your operation.
Is investing risky?
As with any investment, private equity carries a risk of capital loss that can, in theory, be as high as 100%! This is where the choice of private equity investment product plays a decisive role: risk varies significantly depending on the structure, the type of product and, of course, the underlying asset on which the investment is based. It’s not the same thing to invest in the capital of a start-up that has just been launched, as it is to invest in a private equity product based onreal estate.
How much does it cost?
Like most financial products, private equity investment products involve two types of fees;
Front-end fees, which vary from 0 to 5% depending on the product, and are used in particular to remunerate your advisor’s analysis and selection work.
Management fees, generally between 1% and 3%.
Who is private equity for?
First and foremost, for those who want to give meaning to their investments by investing in what we call the real economy. Beyond the potential gains, which can be very substantial, it’s more rewarding to invest in a French company that will create value and jobs, than to let your money sit in a passbook that feeds your bank’s equity capital.
How much to invest?
With just a few hundred eurosvia a PEA or crowdfunding scheme, you can become an active player in the real economy and in your own wealth. The outcome of this type of investment is still uncertain, as it depends on the success of the project and the company in which you have invested. There are also more structured private equity investment solutions in more mature markets, which are therefore less uncertain. Although some operators offering this type of investment have recently opened up the subscription market to investors starting at 5,000 euros, the majority of private equity investors are still in the market. fps and club deal in France are available from 100,000 thousand euros. This type of investment is therefore best suited to investors who already have solid assets and are looking to diversify their investments. Some of these solutions even require classification as professional or related customers, which means higher initial investments. Club deals and SPFs are increasingly used by companies to improve their cash flow, or by business owners looking to invest the proceeds from the sale of their company while optimizing capital gains tax.
Capitalization or distribution?
When we invest our money, we generally seek to generate additional incomeAlthough private equity solutions that distribute income are rare, the primary aim of this type of investment is to participate in the growth and development of a businessIf the value created is consumed by redistributing it, project development may prove more complicated. That’s why these products are generally capitalization-based, so you don’t receive any income during the term of your investment, and you get it back at the end of the term, generally between 5 and 8 years. You therefore recover your capital plus the number of years multiplied by the percentage return. For example, if your investment had a 6% return over a 6-year period, you would calculate 6 x 6%, i.e. 36% performance. Given the specific status of this type of product, you are often partially or even totally exempt from income tax, but not from social security contributions.
How do you choose which products and solutions to invest in?
There are two possible schools of thought,
Either you want to support and invest in a particular company, by investing in its capital. In this case, the potential capital gain will depend on the company’s ability to achieve the objectives it has presented to you. The earlier you invest, the riskier it is, but the greater the potential gain. But in this kind of case, you have no visibility over time, or over potential earnings.
Or you can opt for a more cautious approach, or mutualize via private equity funds, known as ” Club Deal ” or ” FPS “. You invest in a fund, which then invests in a specific, well-known sector, but on a pooled basis. From the outset, you’ll know the return objective, the term of the investment and what your funds will be invested in. The targeted return is likely to be between 6% and 7% per annum, but the probability of reaching the target and thus delivering this added value will be greater.
In both cases, be vigilant and rigorous in your choice of target market and operator, and enlist the support of your financial advisor.
Private equity for entrepreneurs
Please note that these private equity investment products are eligible for legal entities, which means they are eligible for corporate treasury! You can give meaning and yield to your cash flow, aiming for 6 to 8%, while contributing to the real economy. For entrepreneurs who are about to sell their business or have just sold it, there are a number of investment vehicles eligible under article ” 150-0 B ter ” of the French General Tax Code. In other words,by reinvesting at least 60% of the proceeds of your sale within two years in eligible funds, and by holding your positions for at least five years, you could benefit from tax deferral on the capital gain from the sale. Which can make a big difference to you!