France enjoys private equity spring as foreign investors pile in

The French private capital market has become increasingly sought after by foreign investors over the past year. In first half of 2018, €6.6 billion was raised in the market - 50% of this came from foreign investors, including a significant uptick from pension funds (53% year-on-year (YOY)) and sovereign funds (75% YOY), according to a recent report by France Invest and Grant Thornton (1).

We recently hosted a thought-provoking discussion around challenges in investor reporting with a group of general partners, venture capitalists, fund of funds and consultants from the French private capital markets.

Forty percent of our participants reported fund raising over the past year, while others were starting or preparing to fundraise in 2019. Participants also expressed the view that the French market has benefitted from recent market uncertainty in the United Kingdom due to Brexit.

Rising foreign investment boosts demand for investor reporting processes

The growing capital investment from foreign investors across differing investor segmentation has also amplified the workload for investor reporting.

The roundtable participants reported an increased demand in the fundraising process for additional transparency requested in the due diligence questionnaires - including probing questions on environmental, social and governance (ESG) areas. Notably, attendees at our recent event reported that many French-based institutional investors had historical investment track records with the funds and therefore had not required such thorough due diligence.

New foreign investors - particularly Middle Eastern and Asian - have led to an increased need for in-person onsite due diligence meetings. These in-person sessions allow foreign investors to meet the management and operations team as well as drive deeper discussions on investment philosophy. This has required each firm to re-examine their due diligence materials and reporting processes as well as prepare for changes to their ongoing reporting requirements for portfolio monitoring throughout the fund life.

Increased capital investments into French firms

Strong investment into France is also being reflected by investment into French companies. France Invest and Grant Thornton reported in the first half of 2018 that more than 1,100 companies received private capital investment totalling €6.1 billion in France (1). A significant increase in venture capital investment of 42% YOY (€809 million during H1 2018, compared to €571 million in H1 2017) has been positively received by many of the participants. The capital investment was directed into 458 companies, compared to 441 companies in the H1 2017, with a 106% increase in deal size between €5 - 15 million. Indeed, one attendee at our roundtable commented, "France has always been a country with lots of innovation and entrepreneurs - now we are finding there are more investors realising the opportunities."

Sentiment was positive with regards to capital investment converting into investment in French companies, but our roundtable attendees were realistic that the next step will be integrating the requirements of a diverse investor base. This will inevitably require investment in new processes, technology and team members throughout the portfolio-hold period.

At IHS Markit, we have seen growing demand for our iLEVEL software solution supporting monitoring, analytics and reporting to help clients meet investors requirements for increased transparency throughout a fund's portfolio-hold period. To learn more about IHS Markit's Private Market solutions and capabilities, email PCMGlobalSales@ihsmarkit.com.

Reference:

1. France Invest and Grant Thornton, French Private Equity and Venture Capital Report, H1 2018 Activity, 29^th edition, 10 October 2018

By Sarah Broderick, Associate Director for iLEVEL at IHS Markit

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.