I. Definition of an FPCI
A Professional Capital Investment Fund (FPCI) is an investment vehicle, accessible to all well-informed and professional investors able to invest at least €100, which allowsinvest in unlisted companies. At least 50% of the fund's assets must be invested in unlisted companies.
II. Why was the FPCI created?
The FPCI is the new name of the “FCPR (Fonds Commun de Placement à Risques) with a simplified procedure”. It was created to allow private equity managers to have more flexible management rules. Private equity consists of providing funds to a company in exchange for part of its shares. The manager's objective is to resell these shares a few years later by realizing a capital gain.
This relaxation is a continuation of the policy aimed at promote investments in Private Equity.
Private Equity being a important source of financing in our country to support growing businesses. Tax benefits have also been granted to shareholders of different types of investment funds (FPCI, FCPI, FIP, etc.) that invest in unlisted companies.
Be careful, do not confuse FPCI (Professional Capital Investment Fund) and FCPI (Innovation Mutual Fund) which both designate categories of investment funds which allow investment in unlisted companies but whose management rules and tax advantages are different.
III. What do FPCIs invest in?
As mentioned previously, the FPCI invest at least 50% of their assets in unlisted companies. Thus, the remaining 50% can be invested in other investment vehicles. The choice of investment vehicles by the manager will have a very strong impact on the risk profile of the FPCI.
For example, an FPCI invested 100% in unlisted growth companies will present a greater risk than an FPCI invested 50% in growth companies and 50% in other less risky vehicles. On the other hand, in return for the risk, those invested 100% in unlisted growth companies will have a much stronger performance potential.
The investment strategy of an FPCI can be oriented towards an economic sector: technology, finance, health, real estate, infrastructure, etc. It can also be oriented towards other themes such as geography, growth potential or Social Responsibility of Business (CSR).
Moreover, investment strategy will often be focused on a specific type of private equity transaction.
Four types of private equity operations can be distinguished:
1. Venture capital
Le venture capital provides funding for start-ups with strong growth potential. This financing activity will generally be reserved for startups. Venture capital funds have a particularly high risk profile but can yield significant gains, especially if they have invested in a “nugget”.
2. Growth capital
Growth capital is aimed at more mature companies that have already proven the validity of their business model and achieved profitability. The objective is to provide them with financing to enable them to launch new products or expand internationally.
3. Transmission capital
In general, transmission capital concerns the shareholders of a company who wish to sell their shares to a fund which would acquire control of it.
In the majority of cases, the purchase of the company can be carried out with leverage, that is to say, debt will be used to finance this type of operation. This type of operation is called LBO, Leveraged Buy-Out.
4. Capital reversal
Turnaround capital operations make it possible to finance companies in difficulty. For example, a fund will acquire the majority of the capital of the company in difficulty by proposing a recovery or restructuring plan and providing the financial contribution necessary for its implementation.
IV. What are the tax advantages offered by an FPCI?
The taxation of FPCIs can be particularly interesting for investors.
In addition to the significant return potential that this can offer, investing in an FPCI can allow unitholders to benefit from reduced taxation on the capital gain realized in the event of the sale of their units. For this, the FPCI must be a “Tax FPCI” that is to say that it must comply with certain legal and regulatory conditions. In addition, the unitholder of the fund wishing to benefit from reduced taxation on the capital gain must undertake to keep its shares for at least 5 years.
If these conditions are met:
- Either the unit holder is a natural person: the capital gain realized on the sale of FPCI shares will be exempt from income tax, with the exception of social contributions (17,2%) which will remain due.
- Either the unitholder is a legal entity: the rate of corporate tax (IS) levy on the capital gain realized on the sale of FPCI shares increases from 25% to 15%.
Furthermore, certain FPCIs may be eligible for the provisions of article 150-0 b ter of the CGI. These FPCIs can be particularly useful to entrepreneurs who wish to sell the shares of their companies and make it possible to postpone, or in certain cases, exempt, the taxation of the capital gain thus made (see our dedicated article « Article 150-0 b ter of the CGI | Essential information »).
V. How to choose which FPCI to invest in?
To determine which FPCI to choose, the investor must first consider the quality and experience of the managing company. A good way to find out is to contact different management companies. They will be able to propose an appointment of presentation.
In addition, a great deal of information is available on the sites of the management companies. These different information channels allow the investor to be able toevaluate the performance of the management company over time.
The investor must then consider the investment strategy that best meets their expectations. He must determines its risk profile and the sectors in which it would like to allocate its capital. The risk profile is the relationship between his desire for performance and the capacity for capital loss that he is prepared to tolerate.
For example, if an investor is ready to take significant risks in the hope of making greater profits, he would be advised a priori to invest in venture capital funds.
On the other hand, if the investor prefers a more moderate risk while retaining the possibility of having a good return, a development capital strategy could a priori be recommended to him.
In conclusion, the investor must determine the strategy which best corresponds to his expectations.
All of NextStage AM's FPCIs are fiscal FPCIs which potentially allow investors to benefit from advantageous taxation. If you want more information about our investment solutions, contact us.
VI. frequently asked Questions
1. Who can invest in an FPCI?
Investment in an FPCI is open to all professional and informed investors able to invest a minimum ticket of €100.
2. Why invest in an FPCI?
It is interesting to invest in an FPCI mainly for three reasons:
They allow investors to benefit from returns that can be much higher than investments in traditional financial markets. In return, the investor can potentially lose the entire investment.
They benefit from potentially advantageous taxation.
They are an excellent diversification solution.
3. How does an FPCI work?
An FPCI has a relatively short fundraising period. They generally make calls for funds deferred over time, as they make their investments.
4. What is a tax FPCI?
A tax FPCI is an FPCI that complies with certain conditions in order to allow some of its investors to benefit from advantageous taxation on the capital gain realized on the sale of their shares.
5. What tax reductions does a fiscal FPCI offer?
Individual investors benefit from an income tax exemption on the capital gain realized on the sale of their shares. The latter, however, remain liable for social security contributions (17,2%). Investors who are legal entities will see the rate of corporate tax levy on the capital gain realized upon the sale of their shares drop from 25% to 15%. To benefit from these tax reductions, investors in an FPCI, natural or legal persons, must have held their shares for 5 years.