Overview

Introduction

Private equity investment is defined as taking equity stakes in unlisted companies in order to finance start-ups, growth plans and buyouts. Private equity investors take equity interests (with no guarantees) with a view to realising a capital gain upon exit.

Their investment is primarily financial, but it may also include a strategic investment, such as a contribution of know-how or the use of a network.

 

Private equity practices

Private equity entails investing at different stages in the life of a company: start-up, growth, crises, acquisition and buyout. Four types of private equity investment are generally identified:

  • Venture capital
  • Growth capital
  • Buyout capital
  • Turnaround financing.

 

Venture capital

This type of investment mainly involves young innovative companies seeking financing, primarily in the technology and life sciences sectors.
This type of investment breaks down into:

  • Seed money, used to finance research and the preliminary development of a concept. This financing is provided when a product or service is first being developed. This stage can show if a project is feasible, before it reaches the marketing stage.
  • Start-up capital, which is used to finance start-up companies during the development and preliminary marketing of their products. Target companies are less than three years old and have yet to turn a profit.

 

Growth capital

Growth capital is invested in more mature companies after the start-up period. The targets are more than three years old and show a profit. Growth capital is used to consolidate the company’s financial structure for the next stage of its growth, including acquisitions or the development of new product ranges, for example.
Growth capital investment is not specific to certain business sectors, unlike venture capital, which usually focuses on new technologies. Furthermore, growth capital is usually used to acquire minority investments.

 

Buyout capital

Buyout capital easily accounts for the largest share of private equity investment. It is used to finance the acquisition of a company, either by its managers or by outside investors. Buyout transactions are often leveraged, which means the acquisition is paid for with borrowed money. This is the origin of the term “leveraged buyout”, or LBO.

 

Turnaround financing

Turnaround financing is invested, for example, when a company is in crisis and needs restructuring. Investors may inject capital into the company to enable it to overcome its difficulties.

 

Did you know?
This type of private equity investment always gives the investors a say in the management and strategy of the target company. The equity stake comes with voting rights at general meetings.

 

Overview

Presentation

 

Many factors argue in favour of real estate investment. These include predictable cash flows, the lack of correlation between real estate and other assets, low asset price volatility, asset diversity, risk management, the push for portfolio diversification or alternative assets, open markets and the development of a professional and experienced market. Nevertheless, a link was needed between financial management and property-related investments. Real-estate investment schemes, or OCPIs, were thus created to close this gap.

With collective real-estate investment, investors seeking property-related assets have access to professional expertise, diversification of their investments and economies of scale that are harder to obtain under other circumstances.

 

The OPCI: a modern investment product

 

Before OPCIs were created, the main vehicles for property-related investment were real estate investment trusts (SCPIs) and listed real estate investment companies (SIICs). The creation of SIICSs modernised real estate investment, but the purpose of OPCIs is to enable larger number of investors to acquire property assets, without the need for a public offering of securities.

The regulatory and tax constraints on SCPIs prevented them from adapting to current market changes. With the launch of the OPCI, the real estate investment industry has been modernised for the greater benefit of investors. This new investment vehicle gives access to other tax rules than those applying to real estate income, as well as to more dynamic management of real estate assets by promoting the liquidity of asset portfolios.

OPCIs are the nexus between two financial cultures: securities investment and real estate investment. They benefit from the efficient and attractive legal framework for collective investment schemes and from some of the tax benefits of SIICs.

 

 

 

 The total capitalisation of OPCIs at end 2015 was nearly EUR 62 billion.

It should be noted, however, that OPCIs have not developed at the expense of SCPIs (EUR 37.8 billion) and SIICs (EUR 109.6 billion). Their growing popularity simply shows that they serve a useful purpose in the French investment market.

 

 

 

This new investment vehicle also gives the French market a powerful tool for competing with European real estate investment funds, which now own most of the commercial real estate in France, and thus help attenuate the current distortion of competition.