Inside Private Equity - The Big Debrief, 29 May 2024

This Grand Debrief delves deeper into the main themes of the episode on private equity: risk, illiquidity, sector selection, investment timing, exits, democratization, and fund selection. Frédéric Stolar begins by noting that it is possible to lose money in private equity, even with the best funds, but that this risk is significantly mitigated in a diversified portfolio. The main risk remains illiquidity: investors must accept a long-term horizon, often around 7 to 10 years, in exchange for a potential performance premium. Alexandre de Vigan discusses the practical use of funds raised by Nfinite. Fundraising is part of a specific business plan, validated with investors. He also explains that the goal is not to achieve unicorn status, but to build a solid company, a global leader in its sector, with significant recurring revenue.The speakers then detail the sectors most sought after by funds: software, data, healthcare, digital services, and value-added services. These sectors are attractive because they combine growth, resilience, high margins, recurring revenue, and the ability to generate cash flow. The SaaS model is particularly valued for its visibility and recurring revenue. The discussion also addresses investment exits. Funds anticipate potential exit scenarios from the moment of acquisition, whether through a sale to an industrial buyer, to another fund, or, more rarely, an initial public offering (IPO). A sale to an industrial buyer is often preferred because it can include a strategic premium. Louis Flamand notes that the private equity market appears to be gradually normalizing after two years of adjusting to rising interest rates. Valuations have fallen, LBO financing LBO available, and macroeconomic visibility is improving, even as geopolitical risks persist. Aleksandra Putra confirms that fundraising takes longer, but that top managers remain in high demand. The market is becoming polarized: exceptional funds continue to be oversubscribed, while others must work harder to convince investors.Finally, the program highlights the growing accessibility of private equity to retail investors. Frédéric Stolar believes this trend is still in its early stages, with significant potential—provided fundamental principles are followed: a long-term horizon, diversification, rigorous manager selection, and acceptance of illiquidity.In summary: this debrief presents private equity as a demanding, selective, and long-term asset class, where performance depends on the quality of entrepreneurs, fund discipline, diversification, and the ability to sustainably support companies’ growth.