When Unlisted Assets Make Their Way into Life Insurance

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). What are the implications for your investments, what are the risks, and what returns can you expect?

Thus, the managed portfolio of a “balanced” life insurance plan could include a minimum of 4% in private equity investments, and at least 8% for a “dynamic” portfolio. 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. What is private equity?
 

Private equity is a form of investment in companies that are not publicly traded. It involves acquiring 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 stakes in these companies in the medium or long term. Venture capital, on the other hand, focuses on investing in young, innovative companies with high growth potential. Development 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 reselling it. 

What kind of return 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. 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. 

What are the risks associated with private equity?
 

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 companies often take time to grow. This means investors must be prepared to leave their invested funds untouched for an extended period. Furthermore, this type of investment carries a high level of operational risk (competition, market changes, unfavorable 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.