What investing in unlisted companies means
It means acquiring shares in unlisted companies: young, growing or about to change hands. Private investors gain access mainly through specialist funds, whose characteristics and risks are described by the AMF (Autorité des marchés financiers, the French financial markets regulator).
These funds invest over several years, then sell their holdings. Until then, redeeming units is generally impossible: the savings are tied up. Their value, not quoted continuously, is estimated; the sale price can differ from it.
Some funds give access, under conditions, to tax advantages that come with holding commitments; these advantages do not offset the risk.
Reading the key information document and the fund rules
The key information document and the fund rules describe the strategy, the fund’s lifespan, its fees and its risks. The firm goes through them with you before you subscribe, and checks that the fund suits your profile and your objectives.
Low stated volatility does not mean low risk: it often reflects valuations that are less frequent than on the stock market.
How the firm works
The firm first checks that you have sufficient available savings, a diversified allocation, a horizon compatible with the lock-in and an understanding of the investment. If any of these is missing, unlisted investment is ruled out.
Otherwise, its share is set and capped within the strategy. The fund, chosen on the basis of its documentation (strategy, lifespan, fees, exit), is presented with its risks before you subscribe, then monitored through the fund’s periodic reports.
Who it is for
A limited allocation, for those who accept it in full knowledge of what it involves:
- those who already have available savings and a diversified allocation;
- those with a long horizon, who will not need these sums during the life of the fund;
- those who accept that they may lose all or part of the capital invested;
- business owners, familiar with entrepreneurial risk, who want to diversify.
What the firm looks at first
- The share of your wealth that can be tied up comfortably for the whole lock-in period.
- Your understanding of the investment: what you hold, how it is valued, when and how you can exit.
- The fees, often higher than those of listed funds, and their effect on the outcome.
Risks
Unlisted investments are among the riskiest assets available to private investors.
- Loss of capital: all or part of the capital invested can be lost; the companies financed can fail.
- Liquidity: savings are locked up for the life of the fund, often several years; the exit depends on the sale of the holdings.
- Complexity: the value of the units is estimated, not quoted continuously; the final price can differ from it.
- Horizon: long term, for sums you will not need before the end of the term.
- Fees: often higher than those of listed funds, they reduce the outcome.
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