What does FCPI mean?
FCPI stands for Fonds Communde Placementdans l'Innovation.
What does FPCI stand for?
FPCI ProfessionalPrivate Equity Fund.
While both types of funds primarily involve investing in unlisted companies, the tax benefits and management requirements differ significantly between FCPIs and FPCI.
Definition of a FCPI
FCPIs were created by the French Finance Act of 1997 to facilitate the development of innovative unlisted SMEs. They are investment funds set up by a management company, which raises funds from different categories of investors: institutional investors, banks, insurance companies, entrepreneurs and private individuals. In addition, FCPIs are tax-efficient funds with regulatory investment constraints:
- This imposed investment timeframe is restrictive for unlisted investors. Shares must be held for at least 5 years.
- The obligation to invest in the capital of innovative SMEs: 70% of the assets making up this type of fund must be of an innovative nature (digital, ecology, information technology, etc.). A company is considered innovative if : - it is an SME less than 8 years old (fewer than 250 employees and sales of less than 50 million euros) // - at least 50% of its capital is held by individuals // - its R&D expenditure represents at least 10% of total expenses for the previous financial year.
- Note that since the 2020 tax reform, the income tax reduction offered to FCPI investors is proportional to the quota of innovative SMEs in the fund, and FCPI managers are therefore seeking to exceed 70% as much as possible.
Definition of an FPCI
FPCI were created in the 1980s, are FCPRs (venture capital mutual funds) subject to a simplified approval process. This so-called “streamlined approval” procedure stipulates that the French Financial Markets Authority ( AMF) issues a simple stamp of approval but does not grant formal authorization for these funds. They are therefore subject to fewer constraints than “traditional ” FCPRs and thus offer less protection for investors.
FPCIs arePrivate Equityfunds that finance all sectors of the economy, including healthcare, real estate and the hotel industry. They must invest at least 50% in unlisted SMEs , but can also invest in real estate, for example.
Unlike FCPI funds, FPCI funds FPCI any “upfront” tax benefits (they are not considered “tax-sheltering” products).
INVESTOR PROFILE
Who can invest in a FCPI?
As FCPI investment vehicles are subject to AMF approval, they are open to the general public. However, as they offer an upfront tax advantage of up to 25% of the amount invested (up to a limit of 12,000 euros for a single person and 24,000 euros for a married couple), FCPI investments are mainly aimed at investors who pay income tax.
Who can invest in an FPCI ?
Since they do not require approval from the AMF, FPCI are traditionally aimed at professional investors who are able to commit several million euros over a relatively long time horizon (generally 10 years) and who can potentially withstand a loss of capital.
FPCIs are also open to investors who are initially "non-professionals", but who have the capacity to invest a minimum of €100,000 ("informed investors"), or even €30,000 in certain specific cases (notably if they have, by virtue of their professional experience, a very good Private Equity knowledge).
Risks associated with FCPI and FPCI funds
What are the risks of investing in FCPI?
Investing in innovative SMEs in the early stages of their life cycle entails a certain amount of risk. FCPIs should therefore only be marketed to investors who are prepared to lose the sums they have invested, which is not always the case.
The risk is also linked to the illiquidity of the capital: the sums invested are frozen for the life of the fund.
Finally, in exchange for the tax benefit, managers of FCPI funds must adhere to a management strategy that complies with specific regulatory and tax requirements. Tax constraints can weigh on their performance. Performance is often much higher for FPCI funds FPCI fewer management constraints (provided, of course, that one knows how to select high-performing managers).
What are the risks associated with investing in FPCI ?
First of all, the capital invested in an FPCI not guaranteed. Even though the companies in which FPCI invest FPCI selected by professional managers, some may go bankrupt. It is important to keep in mind that the selection of managers is a crucial aspect of investing in an FPCI.
Furthermore, liquidity is not fully recovered until after a certain number of years, as the investor first recovers the capital invested before receiving any capital gains. Investors in FPCI therefore ensure that they will not need the invested funds to cover their regular expenses or potential future expenses (purchase of a primary residence, financing their children’s education, etc.).
For the record, it is generally considered that an investment in an FPCI should FPCI exceed 10% of the investor’s financial assets (except for very high-net-worth investors, for whom this percentage may be as high as 20%).
Reasons to Invest in FCPI and FPCI Funds
Why invest in a FCPI?
Innovative companies are at the heart of our economy, driving growth and creating jobs. That's why investing in a FCPI enables individual investors to support innovation and the real economy , while benefiting from tax advantages and asset diversification.
Investing in an FCPI offers an upfront tax benefit in the form of a tax reduction of up to 25%. In addition, FPCI investors with a tax exemption on any capital gains, provided they do not sell their shares for at least five years.
But the tax appeal of FCPIs often masks disappointing performance. Before investing in a FCPI, you need to be sure of the quality of the managers and the underlying funds.
Why invest in a FPCI ?
FPCI specialized investment vehicles that differ in many ways from more traditional investment solutions. They are designed for investors seeking high returns who are willing to accept a lower level of protection, FPCI authorized by the AMF.
Managers of an FPCI much greater flexibility in managing their investments than those of an FCPI-approved fund, which is, by nature, subject to much stricter regulations.
Even though FPCI are FPCI “tax-exempt” products, the tax treatment of capital gains generated by FPCI be attractive if the FPCI is a tax-efficient fund. In this case, the investor (an individual) benefits from a capital gains tax exemption ( excluding social security contributions), provided they do not receive any distributions during the first five years.
For investors seeking returns and diversification, FPCI , since their inception, offered a credible and particularly attractive alternative to traditional investments.
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