#205 - Adeline Lemaire - The secrets of investing in funds at Bpifrance
Executive Director in charge of fund of funds at Bpifrance
This is the first time I've discussed the management of funds of funds (FoF) in such a special context with one of my guests. My conversation with Adeline will provide you with invaluable insights into the complexities of managing a wide array of investment vehicles, a key strategy for supporting the French economy and elevating France's role in the global financial scene.
During this episode, we look into the workings of this highly respected and stringent team, the key players making pivotal decisions, and the diverse range of investment strategies they employ. We also delve into the intricacies of diversification and the overall investment process.
It was also imperative to understand the Public Bank's climate plan and its impact on Adeline's teams.
The FoF
Having thoroughly covered areas like Growth, Venture Capital (VC), and Leveraged Buyouts (LBO), it became clear that it's time for me to shift my focus more towards exploring FoF.
What are the advantages of FoF?
Diversification: FoFs enable investors to achieve diversified exposure to a wide range of underlying funds, offering diversification in terms of vintages, strategies, and sectors.
Access: Skilled managers have networks and experience that enable them to access managers who are difficult to approach directly, especially in the field of Venture Capital.
Convenience: For many institutional or individual investors, selecting and regularly evaluating private equity funds can be challenging. FoFs take on the responsibility of selecting managers and managing the portfolio.
What are the downsides?
Double layer of fees and carried interests: The underlying funds charge management fees and carried interests, in addition to the management fees and carried interests of the FoF managers. This creates a double layer of fees that can limit returns.
Long time horizon: The commitment period of a FoF typically ranges from three to five years. Meanwhile, the underlying funds in the portfolio often have durations that commonly range between 10 and 12 years. Therefore, if a FoF makes a new commitment in year five, and that fund has a 12-year duration, the fund should not be liquidated before 17 years.
Blind pool: When an investor commits to a FoF, they do not yet know the underlying funds in which their funds will be invested. They must trust the FoF manager to execute the stated strategy.
Who are the top-performing managers?
Finding an up-to-date ranking for Private Equity FoFs can be challenging. I refer to the HEC Paris-DowJones 2022 ranking, which unsurprisingly features American managers occupying the top eight positions.
#1 Union Grove Venture Partners (in VC)
#2 Peakview Capital (in VC)
#3 Cross Creek (in VC)
#4 Performance Equity Management (across the board)
#5 Horsley Bridge Partners (across the board)
This ranking is determined by the performance of FoF managers from 2009 to 2018. It reveals that the major players do not occupy the top ten positions, highlighting that manager recognition and size are not the only indicators of success. Additionally, six of the top ten managers raised less than USD 1 billion in total during this decade.
Bpifrance Investissement
Bpifrance's asset management company is a major player in France with EUR 44 billion in assets under management, including EUR 9.5 billion managed for third parties. They have over 250 investors and a strong regional presence with 53 regional offices.
In the realm of PE and VC, they invest over EUR 3 billion in equity each year, managing a portfolio of over 1,000 holdings across all sectors. Regarding their FoF activity, Adeline's team deploys EUR 1 billion annually through more than 500 funds in France and internationally.
👉 I encourage you to revisit the episode I published in 2022 with Arnaud Caudoux and Matthieu Heslouin, where the focus was on Bpifrance's transformation into a FinTech.
Access for individuals
The Bpifrance Entreprises Avenir fund of funds, managed in partnership with Tylia, offers individuals the opportunity to invest directly in a portfolio comprising approximately 12 PE funds managed by third-party asset management companies. This opens doors to 200 positions in French and European SMEs, ETIs, and start-ups.
If you're interested in subscribing, you can do so 👉 here.
otherwise…
Adeline’s recommendations for this week:
The movie “Règne Animal” by Thomas Cailley
😁 and….
Financial intermediation in private equity: How well do funds of funds perform? 👉 Read
SEC’s bitcoin decision could change markets for years to come 👉 Read
Life after debt: Venture debt funding could grow again in 2024 👉 Read
🎧 Listen here
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👋 Contacts
Adeline Lemaire / Bpifrance
Sources : Bpifrance, Moonfare, Acuity, Russell Investments.