Private Equity Enters the Life Insurance and PER Markets

Starting in October 2024, insurance companies will be required to include a minimum proportion of unlisted assets in the investment portfolios of their life insurance policies and retirement savings plans (PER). 
 

Starting in October 2024, insurance companies will be required to include a minimum proportion of unlisted assets (or private equity) in the investment profiles offered in their life insurance and PER contracts. Thus, the managed “balanced” profile of a life insurance policy could include a minimum of 4% in private equity, and at least 8% for a “dynamic” profile. For a PER, the “balanced” profile (the default profile) could include a minimum proportion of unlisted investments ranging from 3% to 8%, depending on the retirement horizon. 
 

Private equity is a form of investment in companies that are not publicly traded. It involves acquiring equity stakes in companies at various stages of development to support their growth. The ultimate goal is to generate a significant return on investment by selling the equity stakes in these companies over the medium to long term. 

Thus, venture capital aims to invest in young, innovative companies with high growth potential. Growth capital is intended to invest in more mature companies that need capital to finance their growth (for example, to launch new products or enter new markets). Finally, buyout capital involves acquiring a majority stake in a company, developing it, and then selling it. What returns can be expected from private equity?
 

Returns on private equity can vary significantly from one fund to another, depending on the strategy adopted by the management company, the quality of investment selection, and the economic environment. 

Overall, private equity aims for higher long-term returns than those of more traditional investments, such as stocks, for example. According to France Invest (the association representing the private equity industry in France), as of the end of 2022, 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. 

Is private equity risky?
 

While private equity offers high potential returns, it also involves risks. First, private equity is an illiquid investment: funds have lock-up periods of up to 12 years, as it often takes time for companies to grow. This means you must be prepared to leave your invested funds untouched for an extended period.
 

Furthermore, this business involves a high level of operational risk (competition, market changes, adverse economic conditions), and success is not guaranteed. In addition, the risk of total or partial loss of the invested capital is also higher than that of a traditional investment.
 

Although the potential for high returns exists, the lack of liquidity and the risk of capital loss make private equity an investment that is not suitable for all types of investors.