Private equity trends : between hope and uncertainty

Private equity has been booming in France for several years now, with its gradual democratization among individual investors. After a record-breaking year in 2021, both in terms of amounts invested and deals completed, and the beginning of 2022 with the same momentum, there are some grey areas that make us fear a slowdown in the activity, in the more or less long term. Let's take a look at the main trends in the sector!

A sector in strong growth in recent years

In recent years, the French government, together with the European Union, has encouraged access to private equity by improving its attractiveness to investors, particularly individuals. Indeed, the gradual democratization of private equity has allowed individual investors to invest in this asset class, which is considered to be very efficient, but with a higher risk.

In this respect, 2021 proved to be a historic year, both in terms of amounts invested and transactions completed. The number of transactions was 55% higher than ever before, representing more than $1.5 trillion in capital invested and approximately 35,000 transactions. This outperformance was rooted in a post-covid economic recovery, coupled with the presence of large amounts of uninvested capital during the crisis.

But in 2022, the market faces new sources of uncertainty that could slow down this positive momentum.

Various factors explaining the current slowdown

At the end of Q2 2022, the volume and number of transactions were "only" $638 billion and about 15,000 respectively.

There are many reasons that can be put forward to explain the current trend, with varying degrees of impact.

First of all, we can mention the inflationary spiral that has been raging in France and more globally in Europe since the end of 2021, accentuated by the war in the Ukraine. Indeed, the slowdown of the economy has undoubtedly cooled investors, both individuals and professionals, who prefer to delay until they see more clearly.

Another explanatory argument could come from the accusations of several personalities, including Amundi CEO Vincent Mortier, towards private equity. Last June, he pointed the finger at the private equity market, saying that the volume of money raised in recent years by private equity firms had driven up valuations and encouraged companies to buy assets from each other at inflated prices. In short, the private equity market is said to resemble a Ponzi scheme, and while these accusations are largely to be put into perspective, the media blow has undoubtedly cooled some investors in this asset class.

A slowdown to be relativized

However, if we analyze the levels invested as well as the transactions carried out with regard to those preceding the pandemic of covid-19, we notice that the market remains at the moment all the same very robust in view of the context. In other words, the observed "slowdown" would only be a trompe l'oeil of an absolutely exceptional year 2021 for the reasons mentioned above. Thus, in the medium term, private equity should remain an asset class that is widely favored by individuals and professionals alike, notably because of its performance and valuation, which are well above other asset classes (listed equities, public markets).

The current democratization of the market should therefore continue, thanks to increasingly conciliatory regulations and better adapted products such as ELTIFs at the European level, or SLPs in France, accessible through life insurance. In addition, "evergreen funds", open-ended funds with a perpetual investment period and no fixed life, have developed to accelerate the capital deployment period, making private equity more accessible and advantageous to investors with faster return expectations.

Conclusion

Despite numerous signals indicating a decline in the private equity market in France in 2022, this trend appears to be only cyclical, and the ongoing democratization of the asset class should give private equity the ability to perform well in the coming years.