Private Equity in Your PER

Starting in October 2024, new regulations will take effect for insurers, requiring them to include a minimum proportion of unlisted assets in the investment portfolios of their life insurance policies and Retirement Savings Plans (PER). What are the implications for your investments, the risks involved, and the potential returns?
 

The new legislation, which will take effect in October 2024, will require insurers to include a minimum proportion of unlisted assets—also known as private equity—in the investment profiles offered in their life insurance and PER policies. Thus, a “balanced” profile in a life insurance policy could include at least 4% in private equity investments, while a “dynamic” profile would need to include at least 8%. For a PER, the minimum share of unlisted investments in a “balanced” profile could range from 3% to 8%, depending on the retirement horizon.
 

But what exactly is private equity? 

This is a form of investment in privately held companies. The goal is to acquire equity stakes in these companies at various stages of their development, in order to support their growth and generate a significant return on investment in the medium or long term by selling those stakes. Venture capital focuses on young, innovative companies with high growth potential, while growth capital targets more mature companies that need capital to finance their expansion. Succession capital, on the other hand, involves acquiring a majority stake in a company and developing it with a view to reselling it.
 

What kind of returns can you expect from private equity? 

Returns can vary significantly from one fund to another, depending on the management company’s strategy, the quality of the selected investments, and the economic environment. However, private equity generally aims for higher long-term returns than traditional investments such as stocks. According to data from the France Invest association as of the end of 2022, private equity returns averaged 14.2% per year over a 10-year period, compared with 10.4% for CAC 40 stocks and 5.6% for real estate.
 

However, private equity is not without risk. First, it is an illiquid investment, as funds have lock-up periods of up to 12 years—since companies often need time to grow. Furthermore, this type of investment carries a high level of operational risk, as success is not guaranteed, and the risk of total or partial loss of the invested capital is higher than with a traditional investment.
Thus, although private equity offers high potential returns, its illiquidity and the risk of capital loss make it an investment that is not suitable for all investor profiles.