Investing in Private Equity with Eurazeo: Opportunities and Solutions for Individuals
A driver of growth and a major player financing in the economy
Investing in a company's capital through an investment fund means giving it the resources it needs to grow: export, develop new products or services. This is a long-term strategy, illiquid by nature and with an average term of 8 to 10 years, traditionally reserved for institutional investors. Private equity is one of the main sources of finance for companies, alongside bank loans and stock market listings. It is one of the main asset classes in the alternative investment universe, and helps to finance the real economy.
Finance and support
In addition to a financial stake, private equity provides strategic support for the development of the companies it invests in, in order to create value over time. It enables capital to be raised from large institutions or private individuals and channelled into the companies that make up the economic fabric of our societies.
Private equity refers to the provision of finance to unlisted companies at various stages of their development, supporting their start-up, growth or transfer. The aim of private equity is to achieve long-term performance through genuine value creation. It is therefore necessary to support entrepreneurs in order to improve the operational criteria of their companies in the long term.
The company's stage of development will determine the type of financing and support it will receive from the various private equity strategies:
Examples of companies exited or in Eurazeo's portfolio. Past investments are no guarantee of future investments. Investing in private equity involves a risk of capital loss and illiquidity.Each of the specialities of private equity meets different specific needs throughout a company's life cycle.
Investing in unlisted companies is an opportunity for investors looking for diversification and potential long-term performance, while at the same time wishing to give their assets an entrepreneurial dimension.
Investing in private equity means financing the economy and therefore benefiting from the fruits of growth. It's a long-term investment.
This type of investment can be a good way of diversifying your investments, in return for taking on some risk.
There are many ways of investing in this asset class, depending on the company's stage of development and the sectors in which it operates: these are the different investment strategies. At Eurazeo, for each strategy offered to our investors,
we have a dedicated team of specialists.
In addition to economic performance, private equity plays an essential role in helping companies to structure, develop and create value.
The life of a fund
The J-curve effect
Characteristic of private equity funds. In the early years, the burden of initial investments, management fees, etc. is not rewarded by value creation. Private equity funds therefore often have a negative performance in the first few years.
Illiquidity
Private equity funds invest in companies in order to create intrinsic value over the long term. It is therefore not possible to sell your investment before the end of the term. Distributions start to materialise with the first portfolio disposals.
Warning: this diagram is for information purposes only and provides a general illustration of the phases in the life of a traditional investment fund. It is important to note that each fund may follow a different timetable, and investment and distribution periods may largely overlap. In addition, some funds, such as open-ended or evergreen funds, are not limited to a 10-year duration and may not follow the typical J-curve illustrated here. Specific details of each fund are described in the relevant offering documents. Investors are encouraged to carefully review these documents to understand the specifics related to timing, investment liquidity, and exit strategies before committing funds.
The J-curve effect
Characteristics of private equity funds. In the early years, the burden of initial investments, management fees, etc. is not rewarded by value creation. Private equity funds therefore often have a negative performance in the first few years.
Illiquidity
Private equity funds invest in companies in order to create intrinsic value over the long term. It is therefore not possible to sell your investment before the end of the term. Distributions start to materialise with the first portfolio disposals.
Warning: this diagram is for information purposes only and provides a general illustration of the phases in the life of a traditional investment fund. It is important to note that each fund may follow a different timetable, and investment and distribution periods may largely overlap. In addition, some funds, such as open-ended or evergreen funds, are not limited to a 10-year duration and may not follow the typical J-curve illustrated here. The specific details of each fund are described in the relevant offering documents. Investors are encouraged to carefully review these documents to understand the specifics related to timing, investment liquidity, and exit strategies before committing funds.
The different phases in the life of a private equity fund
These are determined by the fund regulations.
@Nicolas Gouhier1. The subscription / capital raising phase
This period may last one or more years and is predetermined. This is the time when investors can subscribe to the fund, or buy fund units, at par value or net asset value. After this period, it is no longer possible to become an investor in the fund.
2. The investment period
This is when the dedicated investment teams receive and analyse opportunities: this is the phase for selecting the assets that will make up the fund's portfolio. Depending on the strategy, this may involve companies or other investment funds ("funds of funds").
On the basis of tangible elements, performance indicators, in-depth analysis and site visits, the teams decide whether or not to invest in the company according to the long-term performance potential they assess. After this period, the investment teams can no longer make new investments.
3. The development phase
This is the time when the management company and the investment teams monitor the investments: they support them in their international development, for possible acquisitions, and in their strategic recruitment. Private equity funds therefore provide both financial and strategic support to selected companies.
4. The maturity or liquidation phase
This is when the management company disposes of portfolio assets on behalf of the fund, and begins to make distributions to investors. The capital of companies supported by Private Equity is by nature illiquid: it is therefore the role of the investment team, together with the managers, to find acquirers, or to float the company on the stock market so that the investors' performance can be realised.
The fund's investors receive distributions as and when the portfolio is sold. This phase can sometimes take several years to liquidate all the assets in the portfolio.
The case of perpetual funds, "evergreen" funds
For some years now, private equity funds known as "evergreen" funds have been appearing. This name refers to funds that have no predetermined closing date, and can potentially last for almost 99 years.
These funds are an alternative to traditional funds, allowing managers to sell their assets not according to the life of the investment fund, but according to the realisation of the potential of the invested company alone. They also allow investors to control their own timetable.
Evergreen investment funds refocus the interest of private equity on its long-term nature, where the companies they support can naturally benefit from the long-term, stable presence of the investment funds in their capital.
@Nicolas GouhierAsset class risks
Investments in non-listed assets offer opportunities for long-term growth, but also carry a substantial level of risk, which requires a thorough understanding before any capital is allocated. Unlike traditional listed investments, investments in private equity, private debt or other real assets are characterised by limited liquidity and long investment horizons, typically between 5 and 10 years. These assets require investors to give up immediate access to their capital, which can be problematic in times of volatility or unforeseen financial needs.
The performance of these investments is intrinsically linked to the ability of the companies financed to navigate a rapidly changing economic and technological environment. There is a real risk of capital loss, as companies may not achieve their forecast objectives due to factors such as regulatory changes, unfavourable developments in their sector or regional economic crises. In addition, the absence of public markets for these investments means that asset valuations can be complex and subject to wide fluctuations depending on market conditions and the quality of the underlying assets.
Depending on the strategies adopted by fund managers, certain risks can be mitigated. For example, sector and geographical diversification can reduce the impact of recession in a specific sector or region. Similarly, well-planned exit strategies and rigorous management can help maximise returns when holdings are liquidated. Nevertheless, the commitment of investors over a significant period of time remains essential, as these strategies often require considerable time to be fully realised.
Investing in non-listed assets therefore requires careful risk assessment, a clear understanding of missing market mechanisms and confidence in the strategic management of the fund. This underlines the importance of investors selecting experienced managers and fully understanding the specific terms of each fund before committing themselves.
@Nicolas GouhierPrivate debt
Private debt is an unlisted instrument, meaning that it is reserved for a limited number of investors. In the majority of cases, the loan is used to finance the growth or transfer of a company.
It offers a variable interest rate, which enables it to take advantage of any rise in interest rates.
Private debt transactions are most often associated with capital transfer transactions or the development of mature and growing companies. Financing is generally at variable rates, with a floor rate of 0% or 0.5% on Euribor, offering protection against both rising and falling interest rates.
This is a genuine alternative to bank loans for growing companies. Specialised private debt funds provide alternative sources of finance, as well as long-term support for the various phases of development or transfer.
In return, investors cannot redeem their investment for the entire duration of the bond issued.
There are several types of debt
Senior debt: Senior debt is debt backed by specific guarantees and repayment of which takes priority over other debt, known as subordinated debt.
Mezzanine debt: subordinated to other bank acquisition loans and repayable at maturity, mezzanine debt is a loan that may be accompanied by a share warrant.
Unitranche debt: This type of debt provides a fund acquiring a company with a single tranche of financing at a single rate - as opposed to tiered structures such as senior or mezzanine debt.
Unitranche debt makes up the bulk of the private debt market and is senior and secured. This means that in the event of default, it will be repaid first.
Direct capital investment
@Nicolas GouhierInnovation capital or venture capital
This is the investment strategy that enables funds to support the early stages of a start-up's life.
A venture capital fund invests directly in the capital of companies at the beginning of their life cycle. Our investment team is one of Europe's largest investors in this strategy: we have over €3 billion under management and have supported more than 180 companies.
This strategy has been open to individual investors since 1999.
Growth capital or "growth equity
The acceleration phase, or "growth equity": fast-growing digital companies, well-known brands and healthcare companies: we are committed to working alongside the most promising companies to help them realise their ambitions.
To realise the vision of ambitious entrepreneurs (Series C and above), we rely on our 16 European Tech experts, who have over 20 years' experience. They can count on a strong investment capacity (€25 to €100 million for the first investment), the ability to reinvest over the long term and a solid international network.
We accelerate the growth of companies in buoyant sectors such as digital health, marketplaces and fintech. To this end, we support entrepreneurs in their external growth operations, helping them to structure themselves, recruit the best talent and penetrate new markets. Our portfolio includes some of Europe's most successful scale-ups, and we aim to turn them into the giants of tomorrow.
Capital transmission or "leverage buy out - LBO" and secondary strategy "Secondaries"
The performance of these investments is intrinsically linked to the ability of the companies financed to navigate a rapidly changing economic and technological environment. There is a real risk of capital loss, as companies may not achieve their forecast objectives due to factors such as regulatory changes, unfavourable developments in their sector or regional economic crises. In addition, the absence of public markets for these investments means that asset valuations can be complex and subject to wide fluctuations depending on market conditions and the quality of the underlying assets.
Depending on the strategies adopted by fund managers, certain risks can be mitigated. For example, sector and geographical diversification can reduce the impact of recession in a specific sector or region. Similarly, well-planned exit strategies and rigorous management can help maximise returns when holdings are liquidated. Nevertheless, the commitment of investors over a significant period of time remains essential, as these strategies often require considerable time to be fully realised.
Investing in non-listed assets therefore requires careful risk assessment, a clear understanding of missing market mechanisms and confidence in the strategic management of the fund. This underlines the importance of investors selecting experienced managers and fully understanding the specific terms of each fund before committing themselves.
The historical performance of private equity
The historical performance of private equity
Private equity stands out for its attractive long-term performance, particularly when compared with traditional investments. On average, this asset class has demonstrated an ability to generate solid returns, often outperforming stock markets over periods of 10 years or more. Thanks to rigorous strategies and operational support for companies, private equity funds enable investors to capture the fruits of growth in unlisted companies. Eurazeo offers a range of private equity solutions tailored to the long-term profitability objectives of individual investors.
The impact of private equity on the real economy
The impact of private equity on the real economy
Investing in private equity means financing the real economy. This type of investment supports companies that contribute directly to growth and competitiveness, by creating jobs and promoting innovation. Eurazeo supports entrepreneurs throughout their development, providing them with both capital and strategic expertise. By contributing to the transformation of these companies, private equity enables investors to participate actively in the economy and support projects that have a positive impact on our societies.
The outlook for private equity over the next few years
Private equity is evolving in line with major global economic trends, with an increasing focus on the technology, healthcare and sustainable infrastructure sectors. Wealth Eurazeo Eurazeo draws on these trends to offer investments in high-potential companies, taking into account societal changes and market innovations. With a favourable outlook for the coming years, private equity is proving to be a strategic choice for investors wishing to diversify their portfolios and participate in the transformation of key sectors of the economy.