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France's CDC seeks to launch private equity fund, targets pension investment

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FRANCE - A subsidiary of the French public financing institution Caisse des Dépôts et Consignations (CDC), CDC Entreprises, is seeking to launch a new private equity fund, hoping to secure funding from local institutional investors at a time when the country's small and medium-sized enterprises (SMEs) are suffering from lack of investment.

The option of setting up a new private equity fund comes as CDC Entreprises is understood to be merging with OSEO - which provides assistance and financial support to SMEs - and the Strategic Investment Fund (SIF), created in 2008 under the management of the CDC to improve equity investment and to help stabilise French firms.

The private equity vehicle, which has already seen interest from pension funds, would aim to help French SMEs to find new sources of investments, with the 2008 financial crisis and Solvency II seen as the two main reasons why institutional investors have walked away from the asset class over the last few years.

Robert Mazaud, chief executive officer of the private equity firm Vauban Partenaires said: "Large transaction in the French private equity sector were essentially made by Anglo-Saxon funds before the financial turmoil, while smaller investments in the asset class were made through vehicles that benefit from tax advantages."

"One of the main issues in France is that investors focus mainly on secondary transactions in the sector, leaving aside primary deals", he added. "As a result, an important amount of capital is currently needed in the primary space."

The size of the fund has not been disclosed but some pension funds have already expressed their interest in the initiative.

In a recent interview with IPE, Charles Vaquier, chief executive at pensions provider UMR, said its pension fund would agree to provide €20m-30m per annum to the new fund, as "it is the role of local pension funds to help the real economy to grow".

However, Vaquier pointed out that with the new Solvency II regime coming into force in 2013, insurance firms will be unlikely to invest in the asset class in the future due to the high capital requirements they will have to meet.

Additionally, the smaller size of France's pension fund market compared to other European countries means the opportunity for the new private equity vehicle to secure investments from local institutional investors is restricted.

As a result, several private equity players as well as pension plans, such as UMR Corem, are now asking the government to help create new pension funds and encourage them to invest in the asset class.

Discussing the issue further, Vaquier added last Friday: "The option of launching new pension funds would help SMEs to find new sources of investments.

"However, it is still politically difficult for any government to implement such pension funds and create incentives to invest in private equity due to the bad press these institutions have always been credited of over the years in the country.

"This bad press is directly linked to the fact that French workers still believe pension funds' objective is only looking towards the return on investment they can get," he added.

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