Societe Generale Private Banking has a “private equity” offering that allows you to diversify your wealth by including an entrepreneurial element. The idea is to invest in unlisted companies that are in direct contact with the real economy.
THE CURRENT ENVIRONMENT MAKES UNLISTED ASSETS MORE ATTRACTIVE, EVEN THOUGH IT IS IMPORTANT TO BE SELECTIVE
Current performance expectations for traditional asset classes are having certain constraints on investment opportunities. Lower bond yields and volatility in the equity markets are an illustration of this.
In this environment, private equity offers an interesting alternative. On the basis of its historical performance, this asset class enjoys higher returns than listed assets. Investors must in return accept certain risks and constraints: there is no guarantee that the capital will be repaid, and the amounts invested are tied up for a long period (8 to 12 years) in illiquid assets.
Today, private equity benefits from several favourable trends. The mergers and acquisitions, business transfers and fund raising markets are currently active and stimulated respectively by historically attractive financing terms (low rates), a demographic impact (baby boomers retiring) and the economy’s digitalisation.
In this favourable environment one must nevertheless be selective to ensure that investments are made with good valuations and that investment vehicles are appropriately diversified.
DELEGATING MANAGEMENT ALLOWS GREATER DIVERSIFICATION
An investor looking for exposure to unlisted companies can invest in a fund managed by a management company or directly in a company’s capital. While the first alternative offers greater diversification and the follow up of a professional manager, the second means a more direct contact with the life of the company but at a higher risk.
A private equity management company raises capital through a dedicated fund, mainly with institutional investors (insurance companies, pension funds, sovereign funds) to finance with equity, or in some cases with debt, a portfolio of unlisted companies. The fund is managed by a professional team that has an active role in the investments, as a majority or minority investor, according to the strategy followed. Private equity funds have a 10-year lifetime on average. The first years are dedicated to the progressive investment of the capital (usually five years) in several companies (between ten and twenty).
Once the value creation strategy is implemented, the companies are progressively sold. The fund’s strategy can target several kinds of companies: some focus on young companies (risk capital or development capital), others prefer more mature companies (Leveraged buy-outs) or distressed companies where a turnaround is needed.
VALUE IS CREATED OVER THE MEDIUM TERM
The private equity fund’s management team must carefully select its investments by conducting an in-depth multi-criteria review of the company and of its environment.
The value creation strategy defined by the shareholding fund is implemented in close cooperation with the company’s management team - which usually has a stake in the company’s capital to ensure a better alignment of interests. It relies on several levers that vary according to the company’s maturity, and in particular:
- Improving the strategic positioning through organic growth (developing the sales outlets or the range of products, digitalisation, etc.) or through external growth (sector consolidation),
- Improving the profitability by optimising certain processes (purchasing, terms of payment, cost reduction, etc.) or by discontinuing non-profitable activities,
- Strengthening the management team,
- Using debt to take advantage of the financial leverage.
The investment horizon – from four to seven years according to the strategies involved – allows growth plans to be implemented without short-term pressure, and offers latitude to choose the right moment to sell the company. The fund manager plays an active role in the companies’ governance and has a privileged access to information.
SOCIETE GENERALE PRIVATE BANKING’S SELECTION
Each year Societe Generale Private Banking’s experts select several funds – whether generalist or thematic – that are open to investment, in order to diversify their portfolios. This diversification meets several kinds of needs, from creating a private equity allocation to diversifying an existing exposure.
During the last 18 months, Societe Generale Private Banking has for instance selected a fund focusing on leveraged transactions (LBO, Leveraged Buy-Out) on a European scale, a global and diversified private equity fund, a fund focused on middle class growth in emerging countries and a fund investing in companies that are betting on the economy’s digitalisation. Furthermore, for very well informed investors, Societe Generale Private Banking can also offer direct investment transactions in the capital of unlisted companies.
Our offering is subject to eligibility criteria. For more information, our teams are at your disposal. Please do not hesitate to contact your private banker. He or she will study these offers and their terms and conditions with you and will verify that they are adapted to your personal situation and investor profile.