A structural trend in investment is establishing itself in favor of private markets. In Europe, 96% of companies with more than 100 million euros in revenue remain private, according to Brice Thionnet of UBP.
At the end of the year, private markets are benefiting from growing demand from investors. However, each category has its own characteristics. Allnews and Voxia are organizing a conference on this subject this Tuesday. Brice Thionnet, Global Head Private Markets at UBP and Hippolyte Abriol, Senior Investment Manager – Private Equity & Mandates, at UBP, answer questions from Allnews:
In which segments of the private markets are you positioning yourself and how?
Brice Thionnet: UBP’s Private Markets Group (PMG) offers a full range of private markets solutions, including private equity, private debt, infrastructure, and real estate. We offer these asset classes through direct investments, internal funds, and a rigorous selection of external funds, whether “evergreen” or closed-end.
We have also developed a range of tailor-made mandates which particularly attract professional clients. They know the importance of not only manager selection, but also cash flow planning, which is essential to maximizing a portfolio’s performance. Through this offer, we allow our private clients to benefit from management inspired by the endowments of American universities, thus offering an institutional approach to private markets.
What has been the development of private markets within your establishment?
Brice Thionnet: PMG was founded almost ten years ago with the aim of giving our clients privileged access to direct investment opportunities and niche funds. This offer, structured around unique themes such as “data centers”, musical royalties, luxury watchmaking, or even transition infrastructure, quickly met with great success among our private clients looking for uncorrelated performances. listed markets.
“Private customers are just beginning this integration, with a penetration rate of around 5%.”
Subsequently, we enriched this first range by integrating “evergreen” funds. This strategic choice allowed us to offer a “core” solution, with distinct advantages: continuous collection, immediate deployment of capital, relative liquidity and the capitalization of returns to promote a cumulative effect. This development has not only strengthened our offering for our historic clientele, but also attracted new investors, thus helping to democratize access to private markets. While family offices have an average exposure of 30% to private assets, private clients are just beginning this integration, with a penetration rate of around 5%.
Why focus on private markets now?
Hippolyte Abriol: Private markets today offer diversification and return opportunities that are difficult to access through public markets, particularly in the current economic context. Since the global financial crisis, the liquidity of public markets has declined significantly, and a growing share of the investment universe is now unlisted. In the United States, for example, the number of listed companies has been halved since the peak in 1996, while 96% of European companies generating more than 100 million euros in revenue remain private. This progressive transfer of value towards the unlisted is a structural trend which is only becoming more accentuated.
Furthermore, private portfolios are seeing the share of passive management grow, which often reduces diversification: the ten largest companies in the S&P 500 now represent 37% of the index. Faced with this concentration, private markets provide an essential source of diversification, allowing exposure to sectors that are less accessible via the listed market and optimizing the return/risk profile of the portfolio.
Additionally, in an environment where the correlation between stocks and bonds is higher than in the past, private markets offer returns that are poorly correlated with traditional assets. This feature helps reduce overall portfolio risk and achieve long-term return goals. We believe that private investors will gradually increase their allocation to private markets to approach the levels already practiced by American family offices and endowments, which have long dedicated around 30% of their portfolio to this asset class.
Can private investors improve their risk/return profile on this asset class usually reserved for institutional investors?
Hippolyte Abriol: Historically, private markets, and in particular private equity, offer higher returns than liquid assets while exhibiting lower volatility. This feature is partly explained by the absence of daily market fluctuations, which allows investors to focus on the fundamental performance of the companies in the portfolio, without the distractions of daily valuation fluctuations.
Private equity also outperforms public equity markets through proactive management, where funds play a central role in optimizing operations and implementing growth strategies, such as developing new markets, mergers and acquisitions and cost reorganization. These value creation levers make it possible to generate returns where listed companies, often constrained by quarterly performance requirements, do not have the same strategic freedom.
“In the United States, for example, the number of listed companies has been halved since the peak in 1996.”
For private investors, “evergreen” vehicles have become a preferred access point to private equity. They allow immediate deployment of capital, and continuous reinvestment, while providing relative liquidity, which is suitable for investors seeking flexible and sustainable exposure. However, for those able to support a greater share of illiquidity in their portfolio and wishing to optimize their return and diversification, we recommend a combination of “evergreen” funds and funds with a limited lifespan. These closed funds provide access to targeted and specific strategies, where the absolute performance potential is often much higher.
This ability of private equity to generate sustainable value, combined with the resilience of long-term investment, allows private investors to benefit from stable and outperforming returns, while improving the return/risk profile of their portfolios.
The performance of private equity funds is very disparate. How do you select the right funds knowing that you are committed to them for the long term?
Hippolyte Abriol: We favor a selective approach oriented towards “mid-market” funds, because they target smaller companies, where the potential for value creation is generally greater. Unlike large funds, which often buy companies from other private equity funds, mid-market funds frequently acquire companies owned by families or founders. This particularity offers greater room for transformation and allows managers to have a real impact on the strategic and operational development of companies.
In today’s environment, relying solely on leverage is no longer enough to generate solid returns. We therefore emphasize the ability of funds to activate different growth levers in their portfolio companies. Some funds, for example, provide essential support for recruiting and strengthening management teams, ensuring they attract key talent. Others support companies in their digital transformation, by integrating artificial intelligence and optimizing processes to improve their operational efficiency. Finally, funds with expertise in mergers and acquisitions actively contribute to external growth, thus allowing companies to accelerate their development.
“In private equity, we favor mid-market managers who have a well-defined value creation strategy.”
Our selection is based on an in-depth analysis of each fund’s strategies, their alignment with investors’ interests and their ability to weather economic cycles. We also analyze past performance taking into account economic downturns, as this resilience is crucial for long-term engagement. By partnering with funds capable of adapting to contemporary challenges and operating with agility, we build resilient portfolios, geared towards sustainable and strong performance.
What are your beliefs on private equity, private debt and infrastructure?
Brice Thionnet: In private equity, we favor mid-market managers who have a well-defined value creation strategy. We are seeing signs of recovery in M&A activity with the fall in rates, which is boosting the financing of LBO (“leveraged buyout”) operations and should benefit private equity by strengthening exit opportunities, and therefore distributions to investors seeking liquidity since 2022. This mid-market approach allows us to exploit the transformation potential in medium-sized companies, often less valued and with significant room for improvement.
For private debt, direct lending remains an attractive pillar for investors seeking stable returns, and we complement this approach with hybrid strategies combining debt and equity for greater flexibility. Segments such as specialty finance and asset-based finance continue to stand out, benefiting from the disengagement of banks and the growing demand for specialized financing solutions. These strategies make it possible to diversify sources of return while meeting financing needs not covered by traditional institutions.
In infrastructure, we are banking on the unique advantages of this asset class, particularly in the areas of energy transition and digitalization. Infrastructure projects generate long-term contractual revenues, often indexed to inflation, providing protection against rising prices. With stable income streams and little correlation to public markets, the infrastructure thus brings stability and resilience to portfolios, while meeting the growing demand for investments in real assets.
Finally, the secondary market continues to provide attractive opportunities in these three asset classes, allowing investors to access mature portfolios with immediate and solid return prospects.
