Photo by Menainfo2019 via Wikimedia (CC BY-SA 4.0)Private equity is a form of financing that involves investing in companies that are not listed on a stock exchange. Unlike shares purchased on regulated financial markets, private equity investments are made directly in the capital of private companies, typically through specialised funds. This segment of the financial world is attracting growing interest from retail investors in France, even though its specific characteristics — illiquidity, long investment horizon, minimum ticket size — set it clearly apart from traditional savings products such as regulated savings accounts or capital-guaranteed life insurance.
Private equity: definition and meaning
The term private equity refers to capital invested in companies that are not admitted to trading on a regulated market. The investor — whether an institutional fund, a family office or a qualified retail investor — acquires a stake in a company, supports it for several years, and then exits with the aim of generating a significant capital gain.
What distinguishes private equity from a conventional stock market investment:
- Illiquidity: shares cannot be freely traded on a secondary market. The lock-up period typically ranges from 5 to 10 years.
- Active involvement: fund managers often play an operational role alongside portfolio companies (strategic advice, governance, networking).
- Long-term horizon: value creation is built over several financial years, sometimes across a full economic cycle.
- Selective access: historically reserved for institutions and high-net-worth individuals, this market is gradually opening to retail investors through regulated vehicles (FCPR, FPCI, FCPI, FIP) available on online platforms or via life insurance contracts.
How a private equity fund works
A private equity fund follows a structured life cycle split into four successive phases.
1. Fundraising
The manager (general partner or GP) collects capital commitments from investors (limited partners or LPs): pension funds, insurance companies, family offices, wealth managers, or retail investors via authorised platforms. Capital is not transferred immediately but called progressively as investments are made.
2. Investment period
Over 3 to 5 years, the fund deploys capital into a portfolio of 10 to 30 companies depending on its size and strategy. Each acquisition involves thorough due diligence covering the financial health, competitive positioning and growth potential of the target.
3. Active portfolio management
Fund managers work closely with management teams to accelerate organic growth, structure bolt-on acquisitions, optimise the balance sheet and prepare the exit. This phase typically lasts 3 to 7 years.
4. Exit
The fund divests its holdings through three main routes: an initial public offering (IPO), a sale to an industrial buyer (trade sale) or a sale to another fund (secondary buyout). Realised gains are distributed to investors according to the split defined in the fund documents, typically 80% to LPs and 20% to the GP (the “carried interest”) after the minimum guaranteed return threshold (hurdle rate) has been reached.
The 3 main types of private equity
Private equity actually covers several investment families with very different risk profiles and operating models.
| Type | Target | Stage | Risk level |
|---|---|---|---|
| Venture capital | Innovative start-ups | Seed, series A/B | Very high |
| Growth capital | SMEs / mid-caps | Expansion | Moderate to high |
| Buyout (LBO) | Mature businesses | Acquisition, succession | Moderate (with leverage) |
| Private debt | SMEs / mid-caps | All stages | Moderate |
Venture capital
It finances start-ups at the seed or series A/B stage, mainly in tech, biotech or greentech. Risk is at its highest — a majority of start-ups never reach profitability. But “home runs” (exits at 10x or 20x) statistically offset losses across the portfolio for the best funds.
Growth capital
It supports already-profitable SMEs and mid-caps looking to accelerate growth, expand internationally or finance bolt-on acquisitions. The risk profile is more balanced than venture capital, with companies that have a track record.
Buyout (LBO)
A leveraged buyout (LBO) involves acquiring a mature company by combining equity and bank debt. Financial leverage amplifies potential returns, but also losses if the company runs into difficulties. This is the dominant segment by volume invested worldwide.
Private debt
Often associated with private equity, private debt involves lending directly to SMEs or mid-caps outside the traditional banking system. The return is fixed (coupon), and illiquidity is generally lower than for equity funds. It is accessible notably through FCPR funds with a bond-oriented strategy. A full guide is available in the article on how to invest in FCPR funds in 2026.
Expected returns and key risks
Historical returns
Data published by France Invest shows that French private equity funds have delivered an average net internal rate of return (IRR) of 10 to 13% per year over 10 years, outperforming listed equity indices (CAC 40, MSCI World) over the same period. The best LBO funds can exceed 20% annualised IRR. However, these figures should be interpreted with caution: they reflect surviving funds (survivorship bias) and mask very strong dispersion between managers.
Key risks to consider
- Capital loss risk: no guarantee exists. If a portfolio company fails, the stake can be worth zero.
- Illiquidity risk: capital is typically locked up for 8 to 10 years. Early redemption is not possible unless specifically provided for in the prospectus.
- Concentration risk: a fund invested in 10 to 15 companies is far more concentrated than a global ETF.
- Vintage risk: a fund’s performance partly depends on the economic environment during its investment period.
- Manager risk: the quality of the management team is the most decisive factor in the dispersion of returns.
The generally accepted rule is to limit exposure to private equity to 10 to 20% of a financial portfolio, allocating only liquidity that is not needed over the lock-up horizon.
How to invest in private equity in France
Historically reserved for institutions with multi-million euro tickets, private equity is now accessible to retail investors through several AMF-regulated vehicles.
FCPR, FPCI, FCPI and FIP funds
Fonds Communs de Placement a Risques (FCPR) are the most widespread vehicle. They can be subscribed directly, via a life insurance policy or a PEA-PME savings plan. FCPI and FIP funds offer income tax reductions (18 to 25% of the amount invested depending on type) in exchange for exposure to innovative or regional SMEs. The article on FIP and FCPI tax reductions in 2026 details the caps and eligibility conditions.
Online platforms
Platforms such as Fundora, Altaroc, Moonfare and Anaxago are democratising access with minimum tickets starting at 100 to 1,000 euros. They select and distribute institutional-quality funds that were historically restricted to professional investors. A full comparison is available in the article on private equity platforms for retail investors in France in 2026.
Via life insurance or PER
Some multi-unit life insurance contracts and retirement savings plans (PER) offer private equity units of account. This is often the most tax-efficient route for a first investment. A comprehensive guide to entry vehicles is available in the article on how to invest in private equity as a beginner in France.
Club deals
For semi-professional investors, club deals allow direct co-investment in a target company without a fund intermediary. Tickets are generally above 50,000 euros and the more concentrated risks require thorough analysis of the target company.
Private equity and taxation: potential advantages in France
Several tax mechanisms in France encourage investment in private equity and capital investment.
FCPI and FIP: income tax reduction
By subscribing to FCPI or FIP funds before 31 December of each year, investors can deduct up to 18% (FIP) or 25% (FCPI) of the amount invested from their income tax, within a cap of 12,000 euros for a single person (24,000 euros for a couple filing jointly). The counterpart is a minimum lock-up of 5 years and a risk of capital loss.
Capital gains exemption on FCPR
FCPR shares held directly (outside an envelope) for more than 5 years benefit from income tax exemption on capital gains realised on exit. Only social charges (17.2%) remain payable.
Outside IFI base
Private equity fund shares are generally excluded from the base of the Impot sur la Fortune Immobiliere (IFI — the real estate wealth tax) under certain eligibility conditions, which is a notable advantage for high-net-worth individuals subject to this tax.
Frequently asked questions
What is the difference between private equity and M&A?
M&A (mergers and acquisitions) refers to buyout or merger transactions between companies, generally driven by industrial groups or investment banks. Private equity involves taking stakes in unlisted companies with the aim of achieving a financial return, with a target exit after 5 to 10 years. The two areas sometimes overlap in LBO transactions, but their objectives and key players remain distinct.
What are the 3 types of private equity?
The three main types of private equity are: venture capital, which finances innovative start-ups at the seed or series A/B stage; growth capital, which supports fast-growing SMEs; and buyout capital (LBO), which finances the acquisition of mature businesses using financial leverage. Private debt and turnaround capital complete the landscape.
How does a private equity fund work?
A private equity fund raises capital from investors, deploys it over 3 to 5 years into unlisted companies, then actively manages those holdings before exiting 5 to 10 years after entry. Realised capital gains are redistributed to investors according to the distribution key defined in the fund documents.
What return can you expect from private equity?
Private equity funds have historically delivered annualised net returns of 10 to 15% per year over the long term, above listed equity indices on average. However, these figures hide wide dispersion across funds. Illiquidity (capital locked up for 8 to 10 years) and the risk of partial or total loss of capital are the counterparts of this high return potential.