What are the different types of private equity funds?

10.7% net per year over ten years: this is the internal rate of return for French private equity , as measured by France Invest and EY at the end of 2025. However , this historical average encompasses a wide range of strategies, fund classes, and management firms. It is neither a guarantee nor a forecast of future performance.

The types of private equity funds cannot be summarized in a single list.

Venture capital, growth capital, and buyouts are types of investment strategies.

FCPRs, FPCI, FCPIs, and FIPs are types of French legal entities.

Secondary funds, funds of funds, and evergreen vehicles are structured around yetother principles of structure and liquidity.

Understanding these distinctions helps investors determine what the fund finances, how it creates value, how long capital may be tied up, and what risks investors face.

The goal, therefore, is not to single out one type of fund as superior to the others, but to develop a coherent framework that takes into account a long-term horizon, risk tolerance, and liquidity needs.

How are private equity funds classified?

A private equity fund pools capital from multiple investors to finance privately held companies in accordance with a defined investment strategy. The fund manager selects investments, supports the companies, arranges for their sale, and distributes any proceeds to the investors.

The most reliable way to classify these funds is to answer four questions:

• What strategy is being pursued?
• How is the exhibition organized?
• What legal structure is used?
• What are the rules for subscription or redemption?

Strategy, structure, and vehicle: three distinct concepts

The strategy outlines the profile of the targeted companiesand the drivers of value creation.

Venture capital funds finance young companies, while buyouts generally target mature companies.

The investment structure specifies whether the fund invests directly in companies, in other funds, or in existing holdings. Finally, the legal vehicle determines its regulatory framework, target audience, and certain operating rules.

A FPCI fund can thus be dedicated to growth, buyouts, secondary transactions, or a combination of several strategies. Comparing a FPCI to a buyout fund would therefore be like comparing a legal framework to an investment strategy.

What are the different types of funds based on their investment strategies?

Traditional strategies follow the major stages in a company’s life cycle, from its founding to its succession. They do not involve the same level of maturity, the same support methods, or the same risk profile.

Venture Capital

Venture capital invests in young, innovative companies that are in the seed or startup phase. These companies may not yet be profitable, and their business models sometimes still need to be proven.

Fund manager s provide not only equity capital but also a network, industry expertise, and support for hiring and subsequent fundraising efforts. The goal is to support the company until it reaches a size large enough to be sold, taken public, or financed by new investors.

While the growth potential may be significant, the risk of failure and capital loss is high. The performance of a venture capital portfolio often depends on a limited number of investments capable of offsetting the companies that fail to grow.

Target sectors may include, among others, software, fintech, healthcare, biotechnology, cybersecurity, and artificial intelligence. The Fund manager ’s area of specialization is therefore a key factor in understanding these technologies, gaining access to the best investment opportunities, and supporting founding teams.

Growth Capital

Growth equity targets companies whose product and market are already established. The funding is used, in particular, to accelerate international expansion, develop new offerings, strengthen teams, or make acquisitions.

The fund often holds a minority stake, even though negotiated governance arrangements can be demanding. The fund seeks to support a new phase of growth without basing all value creation on debt.

Operational risk remains a concern. A company may face challenges in expanding into a new country, integrating an acquisition, or maintaining its margins during a period of sustained investment.

Some growth strategies buyout straddle the line between development capital and buyouts. They generally target profitable companies that still have significant growth potential, often in the software, healthcare, or digital services sectors.

Family Business Succession

Succession financing, or a buyout, typically involves mature, profitable companies capable of generating cash flow. The fund acquires an equity stake—often a majority stake —to support a succession, a change in ownership, or a new phase of transformation.

When an acquisition combines equity and debt, the transaction takes the form of a LBO, short for Leveraged buyout. A portion of the cash flow generated by the company is then used to repay the acquisition debt.

Value can be created through several channels:

1. organic growth;
2. additional acquisitions;
3. improving operational processes;
4. digitization;
5. international development;
6. Changes in governance.

However,leverage increases the company’s sensitivity to interest rates, economic slowdowns, and a decline in its earnings. An excessively high debt structure can reduce the company’s investment capacity and undermine its growth trajectory.

Reversal Capital

Turnaround financing is intended for companies facing financial , operational, or strategic difficulties . The Fund manager injects capital and implements a restructuring plan designed to restore the business’s viability.

This transformation may require financial restructuring, cost reductions, the divestiture of certain business units, or changes to the management team. The fund must therefore possess specific expertise in crisis management, financing, and operational transformation.

The potential for recovery comes with a particularly high risk of loss. The restructuring may fail or require more capital than anticipated.

What strategies complement traditional private equity?

The world of private equity is not limited to the initial acquisition of equity stakes. Strategies have been developed to diversify access to fund managers, investment vintages, and existing portfolios.

Secondary Funds

A secondary fund purchases existing private equity investments. It may acquire a fund’s shares from an investor in a transaction known as an “LP-led” transaction, or invest in a transaction organized by a “ Fund manager ” involving one or more assets, known as a “GP-led” transaction.

In an LP-led transaction, an institutional investor typically sells all or part of a portfolio of funds. The buyer thereby gains access to multiple investment vehicles and a portfolio of existing investments.

In a GP-led transaction, the management company arranges for the transfer of one or more companies to a new vehicle. Existing investors can then choose to sell their stake or retain it within the new structure.

The global secondary market reached $240 billion in transactions in 2025, according to the Global Secondary Market Review published by Jefferies in January 2026. This growth illustrates the secondary market’s growing role in managing liquidity in private markets.

This strategy can provide access to portfolios that are further along in their life cycle and reduce the time required for deployment. However, it does not eliminate valuation risk, illiquidity, or the risk of capital loss.

Funds of Funds

A fund of funds invests in multiple funds managed by different teams. This structure can diversify exposure across various strategies, geographic regions, sectors, and vintages.

A single vehicle can thus provide access to dozens of fundsand, indirectly, to a large number of unlisted companies. This approach may be appropriate when an investor does not have the resources needed to select and monitor each underlying fund.

Diversification, however, depends on the actual composition of the portfolio. Several funds may hold the same companies or remain sensitive to the same economic factors.

Investors should also consider the cumulative effect of fees. Fees may be charged at the fund-of-funds level and then again at the level of the underlying funds. The quality of the fund manager selection must therefore generate sufficient value to justify this structure.

Co-investment Strategies

Co-investment involves investing directly in a company alongside a lead fund. It is not always a standalone fund type, but some investment vehicles are specifically designed for this purpose.

A buyout fund may, for example, offer certain investors the opportunity to participate in an acquisition when the size of the transaction exceeds its usual allocation. The lead Fund manager r generally retains responsibility for selecting, executing, and monitoring the investment.

This approach provides a more concentrated exposure to selected investments. It may limit certain fee levels, according to the fund’s prospectus, but it offers less diversification than a portfolio composed of many funds.

The quality of the sponsor, the alignment of terms among investors, and the level of concentration must be carefully examined.

What are the main French vehicles?

The acronyms FCPR, FPCI, FCPI, and FIP refer to legal frameworks, not performance strategies. Consequently, two funds within the same vehicle may have very different portfolios and risk levels.

FCPR

A venture capital mutual fund is an alternative investment fund that may be open to non-professional investors.

According to Article L. 214-28 of the Monetary and Financial Code, at least 50 percent of its assets must consist of eligible instruments, primarily related to unlisted companies.

An FCPR can implement a wide variety of strategies. It can invest in venture capital, growth capital, buyouts, secondary funds, or a combination of these categories.

The name alone does not provide information about the maturity of the companies, diversification, expenses, or the actual duration of the investment. The fund’s regulations, key information document, and reports remain the decisive factors.

The FPCI

A professional private equity fund falls into the category of funds open to professional investors. It operates within a framework tailored to strategies that are often more sophisticated and may take the form of a mutual fund or an open-end investment company.

FPCI s are frequently used by asset management firms to structure institutional funds—including growth capital, buyout, secondary, and fund-of-funds—funds.

Access for non-professional investors depends on applicable regulations, the fund’s terms and conditions, and its distribution arrangements. It is therefore advisable to verify eligibility, the minimum investment amount, capital calls, and sale restrictions in the documentation, rather than assigning a single minimum investment amount to all FPCI .

FPCI s are not a strategy in and of themselves. Two FPCI may target entirely different companies, geographic regions, and risk profiles.

The FCPI

The innovation mutual fund is a category of FCPR focused on innovative small and medium-sized enterprises.

Effective February 16, 2025, Article L. 214-30 of the Monetary and Financial Code stipulates that at least 70 percent of assets must meet the eligibility criteria set forth in the law.

In particular, selected companies must meet criteria related to their size, location, and the innovative nature of their business. The innovative nature of their business can be assessed based on research expenditures or the company’s ability to develop new products, services, or processes.

The FCPI focuses its exposure on innovation and may, under certain conditions, be subject to a specific tax regime. However, any potential tax benefit does not offset an insufficiently diversified portfolio, high fees, or poor stock selection.

Tax rules should be checked at the time of enrollment, as they may change from year to year.

The FIP

A local investment fund is also a type of FCPR. It invests at least 70 percent of its assets in small and medium-sized enterprises that meet regulatory criteria, with a geographic scope defined by Article L. 214-31 of the Monetary and Financial Code.

The FIP provides geographic exposure, but this specialization may reinforce regional or sectoral concentration. The potential for diversification therefore depends on the number of companies, the variety of sectors, and the depth of the local market accessible to the Fund manager.

As with the FCPI, an analysis of the fund’s management style ( Fund manager), portfolio, fees, and exit strategies should take precedence over the sole pursuit of a tax advantage.

Closed-end funds or evergreen funds: What's the difference?

Strategy alone is not enough to understand a fund. Its term and liquidity terms also determine how an investor commits capital, receives distributions, and may eventually sell or redeem their shares.

How a Closed-End Fund Works

A closed-end fund raises capital over a specified period. The capital is then gradually drawn down to finance acquisitions, and the investments are subsequently sold off over time.

Distributions are made as assets are sold off, with no guaranteed schedule. The economic life may be extended when market conditions do not allow for the sale of businesses under terms deemed satisfactory.

This structure allows the fund m Fund manager r to take a long-term view without having to constantly respond to redemptions. For investors, it means limited visibility into the timing of call notices and distributions.

The Monetary and Financial Code also allows the offering circular of an FCPR to restrict the redemption of shares for a period of up to fifteen years. This regulatory limit does not mean that all funds adopt the same term.

How an Evergreen Fund Works

An evergreen fund generally does not have a predetermined liquidation date. It may conduct regular offerings, reinvest a portion of the proceeds from sales, and offer structured redemption windows.

This structure can build a permanent exposure to private equity and gradually incorporate new investments. It can also combine primary and secondary transactions as well as co-investments.

However, “evergreen” does not mean liquid. Redemptions may be capped, deferred, or suspended to avoid the forced sale of unlisted assets.

Before investing, it is therefore important to consider:

1. any lock-up periods;
2. the limits on buybacks;
3. the frequency of valuation;
4. payment terms;
5. the exceptional conditions for suspension.

How can you compare different types of private equity funds?

The comparison must focus on the fund's economic reality, not merely on its name.

This table provides an initial framework for analysis. The level of risk also depends on the quality of the Fund manager, the price paid, the diversification of the portfolio, and the economic conditions specific to each vintage.

How do you choose a type of fund?

Choosing a fund isn't just about selecting the strategy with the best historical performance. You need to determine whether its investment approach, risks, and time horizon truly complement your existing portfolio.

Review the fund's strategy

The documentation must specify the maturity stage, sectors, geographic areas, company size, and the desired level of control.

A broad label such as “growth” or “buyout” is not enough if the investment criteria remain vague. It is also necessary to understand how the Fund manager plans to create value and under what conditions the holdings may be sold.

Assess the quality of the Fund manager

Selecting the best portfolio managers is key in the private equity sector. They decide which companies to buy, at what price, how to support them, and when to sell them.

The analysis focuses in particular on:

• the team's stability and experience;
• the consistency of the strategy;
• the results achieved;
• the losses recorded;
• the field of valuation;
• the ability to create operational value;
• transparency in reporting;
• environmental, social, and governance practices.

Results must be analyzed on a fund-by-fund and vintage-by-vintage basis. A historical market average never predicts the future performance of a particular investment vehicle.

Measuring Actual Diversification

The number of holdings alone is not enough. A portfolio may appear diversified while still being concentrated in a single region, sector, vintage, or a small number of fund managers.

A coherent wealth management strategy also takes into account existing exposures in real estate, family businesses, or publicly traded assets. Adding an illiquid fund to an already illiquid portfolio does not automatically result in better diversification.

Diversifying across multiple vintages can also reduce dependence on a single investment environment, interest rate, or exit conditions. However, it does not eliminate the risk of loss.

Check the investment horizon and liquidity

Investors must be able to maintain their exposure throughout the fund’s economic life, even if distributions are deferred.

Future cash flow needs, retirement, a business succession, or a real estate project must be taken into account before investing. The theoretical possibility of selling shares on the secondary market does not guarantee that a buyer will be found or that the price will be close to the net asset value.

In an evergreen fund, the existence of redemption windows should never be equated with guaranteed liquidity. In a closed-end fund, it is also important to anticipate the capital call schedule.

Understanding Fees and Access

Fees may apply to the vehicle, the underlying funds, and sometimes to transactions. It is important to review management fees, performance fees, subscription fees, and any “stacking” specific to funds of funds.

The method of investment also matters: direct investment, life insurance, a “ PER ,” or another investment vehicle. The choice of investment vehicle can affect taxation, fees, or the availability of capital, but it does not alter the economic strategy of the underlying assets.

The minimum investment amount should not be interpreted as an indicator of quality. A high investment amount does not guarantee the performance, diversification, or financial strength of the Fund manager.

What are the main risks?

All types of private equity funds involve a risk of partial or total loss of capital. They are also subject to illiquidity, uncertain investment time horizons, valuations that are not determined on a daily basis, and difficulties in divesting certain holdings.

The risk of selection bias is particularly significant. Two portfolio managers using the same strategy may achieve very different results depending on the price paid, the quality of the companies, the level of operational support, and the exit conditions.

The main risks include:

• the risk of capital loss: one or more companies may fail or be sold at a loss;
• liquidity risk: units cannot always be redeemed or sold quickly;
• Valuation risk: The value of unlisted companies is based on valuation methods rather than a daily market price;
• selection risk: performance depends heavily on the decisions made by the management company;
• Macroeconomic risk: Economic growth , interest rates, and financing conditions can affect companies;
• concentration risk: a portfolio may be overly exposed to a single sector, region, or a limited number of companies;
• currency risk: international strategies may change in response to currency fluctuations;
• Regulatory and tax risk: The rules governing vehicles and investors may change.

Diversification reduces certain concentrations but never eliminates the risk of loss. Past performance is not indicative of future results.

Key Takeaways

• Private equity funds are classified based on their strategy, exposure structure, legal vehicle, and liquidity rules.
• Four traditional strategies cover the business life cycle: venture capital , growth capital, succession capital, and turnaround capital.
• Secondary funds, funds of funds, and co-investments follow different portfolio-building strategies.
• An FCPR must comply with a regulatory requirement that at least 50% of its assets be eligible assets.
• Under current regulations, FCPI and FIP funds are subject to an eligible investment quota of at least 70 percent.
• A " FPCI " is a commercial vehicle, not an investment strategy.
• An evergreen fund may allow for redemptions, but these may be capped, deferred, or suspended.
• The quality of the Fund manager, diversification, fees, and liquidity matter more than the name of the investment vehicle alone.
• Past performance is not indicative of future results, and there is a risk of capital loss.

FAQ

What are the main types of private equity funds?

The main strategies are venture capital, growth capital, succession capital, and turnaround capital. These may be supplemented by secondary funds, funds of funds, and co-investment vehicles.

What is the difference between an FCPR and a FPCI ?

The FCPR is a private equity fund that may be open to non-professional investors. The " FPCI " falls under the category of professional funds and operates within a framework suited to more sophisticated strategies. Eligibility requirements depend on the fund’s regulations and documentation.

What is the difference between venture capital and a buyout?

Venture capital funds finance young, innovative companies—often unprofitable ones—and typically take minority stakes. Buyouts, on the other hand, tend to target mature, profitable companies, often involving a takeover and sometimes the use of a " LBO."

What is a private equity fund of funds?

A fund of funds purchases shares in existing funds or stakes already held by fund managers. This gives it access to portfolios that are further along in their life cycle, without eliminating the risks of valuation, illiquidity, and capital loss.

Is an evergreen fund liquid?

No. An evergreen fund may offer redemption windows, but these are generally subject to caps and liquidity protection mechanisms. Redemptions may be deferred or suspended under certain circumstances.

How do you compare two private equity funds?

It is important to compare their strategy, the quality of the Fund manager, performance by vintage, losses, diversification, fees, valuation policy, capital-raising procedures, and liquidity conditions.

Conclusion

Understanding the different types of private equity funds requires distinguishing whatthe fund acquires, how it builds its portfolio, the legal framework it uses, and the conditions under which the investor commits or recovers its capital. This multi-layered analysis prevents mistaken comparisons between a “ FPCI ” and a buyout strategy, or between an evergreen fund and a secondary fund.

No single asset class is suitable for all investors. A long-term asset allocation strategy relies on the quality of the portfolio selection, the complementarity among portfolio managers, strategies, geographic regions, and investment horizons, as well as prudent management of illiquidity.

Private equity remains a risky investment. Results are never guaranteed, and past performance is not indicative of future results.