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French private equity outperformance (Alpha)

05 July 2023

The French private equity outperformance study is carried out by France Invest and Gottschalg Analytics.

6th edition

2022

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Methodology

France Invest – Gottschalg Analytics partnership

The goals of the partnership

Shed a new light on the industry’s performances, considering its specifities.
Give France Invest’s new benchmark references, including towards main stock markets.
Promote this asset class to an insider public and offer a better visibility on the performance achieved by the French private equity players to French and foreign LPs.

Organization of the partnership

France Invest gives Gottschalg Analytics Performance Analytics an anonymous database on the net performance of its members.
Gottschalg Analytics Performance Analytics calculates the alpha of the asset class compared to a reference market (CAC 40).
France Invest promotes the study in collaboration with Gottschalg Analytics Performance Analytics.

Private equity: robust performance over the long term, outperforming other asset classes

05 July 2023

France Invest (Association of Investors for Growth) and EY are today presenting the 29th edition of their annual study on the net performance at the end of 2022 of French private equity players (private equity and infrastructure funds).

Key lessons:
1) Robust performance to the end of 2022 (14.2% net per annum over 10 years)
2) A slight decline over the year (performance over 3 years at 15.2% net per annum compared with 19.5% at the end of 2021, a year of strong recovery)
3) Outperforms all other asset classes over the long term, demonstrating the ability of supported companies to create value across cycles

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Bertrand Rambaud, Chairman of France Invest, comments: “After a strong recovery in 2021 following the end of the health crisis, 2022 marks a return to the average. The slight fall in yields seen this year can be explained by a downturn in the tech sector, a more uncertain economic environment and inflationary pressures. Over the longer term, the industry continues to deliver robust returns for its subscribers, outperforming all other asset classes over the long term. Through these cycles, the companies we support adapt and maintain the process of value creation in their businesses. This is how French private equity helps to strengthen our economy in the long term.”

A/ Consistently robust performance over the long term

At the end of 2022, despite a more uncertain environment in recent months, long-term performance is consolidating at a high and stable level at 14.2% per year over 10 years[1].

The year 2022 was marked by macroeconomic developments (inflation, rising interest rates, rising energy costs, falling financial markets, etc.) which brought the economic situation back to normal after the strong recovery seen in 2021. The downturn in the tech sector and the overall adjustment in valuations across all segments should also be taken into account. As expected in this context, private equity returns at the end of 2022 are falling slightly.

B/ Outperforms all other asset classes over the long term, demonstrating the ability of supported companies to create value across cycles

Private equity outperforms all other asset classes over the long term.

Whatever the segment selected (venture & growth, development capital, buyout capital, mixed vehicles, infrastructure funds), long-term performance is high.

This outperformance bears witness to the value-creation capacity of the companies we support, and to the ability of private equity funds to support their investments over the medium and long term, so that they perform better through economic cycles.

“The 2022 performance of private equity measured over 10 years (14.2%), albeit slightly down on last year, maintains a significant yield differential of around 4 points compared with the CAC 40 or CAC All Tradable stock market indices,” points out Stéphane Vignals, partner at EY Strategy and Transactions. “This demonstrates the resilience of private equity across economic cycles and the ability of private equity players to have effectively supported the management teams of the companies in which they invest in the situation of inflationary and geopolitical tensions that we experienced in 2022” adds Stéphane Vignals.

Methodological reference: See footnote[2]

[1] Given the average lifespan of vehicles (between 8 and 10 years) and the length of time over which investments are made, the final performance of vehicles is built up over the long term: the most relevant performance indicators are those relating to horizons of at least 5 years, particularly performance over 10 years or since inception.

[2] Note: 2022 scope and calculation method

As with previous years’ studies, the 2022 edition is based on data that is broadly representative of the French market: it covers almost 900 vehicles managed by 146 management companies. The number of vehicles covered has risen sharply since 2017. In addition to growth in the market and in the number of players, it is also due to the long-term viability of those players who have demonstrated repeated good performance with their subscribers.

All the reports on the net performance of French private equity players

The net performance of French private equity players study is carried out by France Invest and EY.

Net performance of French private equity players at end 2019

Methodology and definition

The France Invest / EY study on the performance of French private equity players has been the benchmark for the French market since 1994.

It is based on information reported by France Invest members via a European data collection platform (European Data Cooperative), and reviewed by EY, which ensures the consistency and robustness of the statistics published.

Net IRR corresponds to the net IRR calculated since inception (1987), taking into account all the flows of mature funds built up since 1987. It is calculated over a variable period, starting from a fixed inception (1987 in our study).

The net IRR over 10 years corresponds to the net IRR calculated over the last 10 years from 31 December 2022, taking into account all the flows of mature funds for which a net asset value (SCR) or estimated value (FCPR) is available at the start of this period, i.e. 31 December 2012. We then consider the assets or estimated value of the fund at 31 December 2012 as the theoretical investment at the start of the period. It is calculated for a fixed term, over a rolling period (at the end of 2022, the 10-year IRR is calculated over 2013-2022).

Net IRR is the IRR achieved by a subscriber on his or her investment in a private equity vehicle (venture capital mutual fund (FCPR), venture capital company (SCR), Limited Partnership, etc.). It takes into account negative flows relating to successive calls for funds and positive flows relating to distributions (in cash and sometimes in securities) as well as the net asset value of the units held in the vehicle on the calculation date.

This rate is net of management fees and carried interest.

It includes the impact of cash, the time effect and the estimated value of the portfolio.

Private equity activity in 2022

30 March 2023

Private equity activity in 2022: resilient investments, a slowdown in fundraising in the second half of the year and renewed interest from individual investors

2,857 businesses and infrastructure projects were the subject of €36bn in investment in 2022. The French market stands out from the global market with a limited decline in investment in SMEs.
€41.5 billion was collected from investors, for an average investment term of 5 years, with a slowdown observed in the second half of the year.
As in 2021, individuals and family offices, with 19% of direct subscriptions and via life insurance, confirm their interest in private equity (excluding infrastructure).

France Invest (Association des Investisseurs pour la Croissance — association of investors for growth) and Grant Thornton today present the 2022 activity of French private equity players (companies and infrastructure projects). This activity report is once again a benchmark: 309 management companies participated (i.e., a coverage rate of 93%).

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Claire Chabrier, President of France Invest, comments: “The year 2022 was in many ways affected by external factors. Our industry was impacted in the second half of the year, notably by a slowdown in fundraising. Nevertheless, the overall performance for 2022 remains positive: the French private equity industry remains active and continues to finance start-ups, SMEs and mid-caps, so they can be more robust and more successful. It is perfectly equipped to navigate in uncertain times when companies must weather repeated crises while continuing to innovate and accelerate their economic and ecological transitions. At the same time, we note the renewed interest of individual investors and family offices in our industry: they represent 19% of fundraising. We are already playing our role as a bridge between savings and the financing of the economy and will continue to do so.“

1. Global data for private equity players in 2022: investments are maintained, more businesses and infrastructure projects are supported, but fundraising is slowing down

2,857 businesses and infrastructure projects
funded and supported in 2022 (versus 2,495 in 2021)

In 2022, French private equity and infrastructure players invested €36bn (+1% compared to 2021) in 2,857 businesses and infrastructure projects (+15% compared to 2021).
The main sectors funded are industry, digital, health (including biotechnology) and renewable energy.
At the same time, €41.5 billion in savings were raised from institutional and private investors (-1% compared to 2021).
The attractiveness to international investors is confirmed, who represent 55% of the funds raised (compared to an annual average of 49% over the last 10 years).
These apparently stable figures compared to 2021 nevertheless reflect a significant shift between the first and second half of the year (details below). In particular, the slowdown in fundraising in the second half of the year reverses the historical trend of a more active second half of the year than the first.

2. Focus on the private equity market (excluding infrastructure): slightly lower investments and a higher number of businesses supported

Investments

In 2022, the amounts invested reached €24.7bn (-9% compared to 2021). This slight decrease is explained by the reduction in investments of over €100m.
Primary transactions (companies opening their capital to a France Invest member for the first time) represent 48% of the amounts invested over the year (identical to the annual average over the last 10 years).
2,681 companies were assisted in 2022 (+4% compared to 2021). This very high level is therefore not affected by the reduction in the number of operations in the second half of the year.
A slight contraction inthe amounts invested in the buyout segment, particularly for deals of over €100m, is partly explained by the sharp drop in bank financing in the second half of the year, which was a limiting factor for the implementation of certain large deals.
It should be noted that transactions in the venture and growthsegments are up by +11% in terms of amounts invested and +13% in terms of number compared to 2021.
The top three sectors invested in are: industry, digital and health, in line with the trend of recent years.

Fundraising

Overall, fundraising increased slightly to €25.4bn, driven in particular by a number of fundraising projects in excess of €1bn.
However, fundraising fell between the first and second half-year (-50 %). While historical data shows a more dynamic second half of the year, the second half of 2022 reached its lowest level since H2 2017.
Investors are still very diversified and international fundraising remains at a high level of 40 %.
As in 2021, individuals and family offices, with 19% of direct and life insurance subscriptions, confirm their interest in private equity (excluding infrastructure). These funds were raised directly or via unit-linked life insurance (€4.8bn). Institutional investors are of course still in the majority (82%), but this development confirms the trend observed over the last two years.

3. Focus on the infrastructure market: very high levels of investment driven by the environmental transition and mobility/transport

Investments

Investments are on the rise at €11.6bn (+30% compared to 2021), driven again in 2022 by financing for renewable energies (€3.9bn and 61% of projects supported in terms of number).

Raising capital

The level of fundraising decreased to €16bn (-7% compared to 2021), due to the decrease in large-scale fundraising.
As observed historically, the main investors are pension funds, funds of funds and insurers, which account for 80% of the amounts raised.
80% of capital is raised internationally (compared to an annual average of 69% over the last 4 years).

Thierry Dartus, Partner, Transaction Advisory Services, Grant Thornton emphasises: “2022 was full of contrasts. Activity remained buoyant generally, despite a macroeconomic and geopolitical environment that was not very favourable to private equity. After a dynamic first half of the year, the tightening of financing conditions for LBO transactions had an impact on activity. However, fundraising remained stable over the period at nearly €40bn. Even if the number of companies invested in increased in 2022 (+14% with 2,900 companies), the decrease in amounts is observed in the segment of tickets above €15m and in the sectors of the economy most exposed to the current uncertainties (BtoC, health and digital in particular). It is premature to draw conclusions from this inflection for the first months of 2023. The companies have strong balance sheets and good results. A possible decrease in inflation could facilitate private equity activity in the coming months.”

The overall amounts for 2022 for
private equity (including infrastructure) and private debt:
€53.7bn invested and €52.8bn raised