What does FCPI mean?
FCPI stands for Fonds Communde Placementdans l'Innovation.
What does FPCI stand for?
FPCI stands for Fonds Professionnelde Capital Investissement.
The vast majority of these two types of fund invest in unlisted companies, but the tax advantages and management constraints are very different between FCPIs and FPCIs.
Definition of a FCPI
FCPIs were created by the French Finance Act of 1997 to facilitate the development of innovative unlisted SMEs. They are investment funds set up by a management company, which raises funds from different categories of investors: institutional investors, banks, insurance companies, entrepreneurs and private individuals. In addition, FCPIs are tax-efficient funds with regulatory investment constraints:
- This imposed investment timeframe is restrictive for unlisted investors. Shares must be held for at least 5 years.
- The obligation to invest in the capital of innovative SMEs: 70% of the assets making up this type of fund must be of an innovative nature (digital, ecology, information technology, etc.). A company is considered innovative if : - it is an SME less than 8 years old (fewer than 250 employees and sales of less than 50 million euros) // - at least 50% of its capital is held by individuals // - its R&D expenditure represents at least 10% of total expenses for the previous financial year.
- Note that since the 2020 tax reform, the income tax reduction offered to FCPI investors is proportional to the quota of innovative SMEs in the fund, and FCPI managers are therefore seeking to exceed 70% as much as possible.
Definition of an FPCI
FPCIs, which were created in the 1980s, are FCPRs (Fonds Communs de Placement à Risque) with a streamlined procedure. This so-called "light approval procedure" means that the Autorité des Marchés Financiers (AMF) issues a simple visa, but no approval , for these funds. They are therefore subject to fewer constraints than "classic" venture capital funds, and therefore offer less protection for investors.
FPCIs arePrivate Equityfunds that finance all sectors of the economy, including healthcare, real estate and the hotel industry. They must invest at least 50% in unlisted SMEs , but can also invest in real estate, for example.
Unlike FCPIs, FPCIs do not offer any "upfront" tax advantages (they are not tax-exempt products).
INVESTOR PROFILE
Who can invest in a FCPI?
As FCPI investment vehicles are subject to AMF approval, they are open to the general public. However, as they offer an upfront tax advantage of up to 25% of the amount invested (up to a limit of 12,000 euros for a single person and 24,000 euros for a married couple), FCPI investments are mainly aimed at investors who pay income tax.
Who can invest in an FPCI?
Since they do not require AMF approval, FPCIs are traditionally aimed at professional investors, who are able to invest several million euros over a fairly long time horizon (usually 10 years), and who can bear a potential capital loss.
FPCIs are also open to investors who are initially "non-professionals", but who have the capacity to invest a minimum of €100,000 ("informed investors"), or even €30,000 in certain specific cases (notably if they have, by virtue of their professional experience, a very good Private Equity knowledge).
Risks associated with FCPIs and FPCIs
What are the risks of investing in FCPI?
Investing in innovative SMEs in the early stages of their life cycle entails a certain amount of risk. FCPIs should therefore only be marketed to investors who are prepared to lose the sums they have invested, which is not always the case.
The risk is also linked to the illiquidity of the capital: the sums invested are frozen for the life of the fund.
Lastly, in return for their tax advantages, FCPI fund managers must follow a management policy that meets specific regulatory and tax constraints. Tax constraints can weigh on performance. The latter are often much higher for FPCIs, due to the fewer constraints on management (provided, of course, that you know how to select high-performance managers).
What are the risks of investing in FPCI?
First of all, the capital invested in an FPCI is not guaranteed. Even if the companies in which FPCIs are invested are selected by professional managers, some may go bankrupt. It's important to bear in mind that manager selection is a crucial element of FPCI investment.
In addition, liquidity is only fully recovered after a certain number of years, with the investor first recovering the capital he has invested before reaping the capital gains. FPCI investors must therefore make sure that they will not need the sums invested to cover their usual expenses or any future expenses (purchase of a principal residence, financing their children's education, etc.).
For the record, an investment in an FPCI should not represent more than 10% of the investor's financial assets (except for very wealthy investors, for whom this percentage may be as high as 20%).
Reasons to invest in FCPIs and FPCIs
Why invest in a FCPI?
Innovative companies are at the heart of our economy, driving growth and creating jobs. That's why investing in a FCPI enables individual investors to support innovation and the real economy , while benefiting from tax advantages and asset diversification.
Investing in a FCPI offers an upfront tax advantage in the form of a tax reduction of up to 25%. In addition, investors benefit from tax exemption on any capital gains, provided they do not sell within 5 years.
But the tax appeal of FCPIs often masks disappointing performance. Before investing in a FCPI, you need to be sure of the quality of the managers and the underlying funds.
Why invest in an FPCI?
FPCIs are specialized investment vehicles that differ in many ways from more traditional investment solutions. They appeal to yield-seeking investors who are willing to accept less protection, as FPCIs are not AMF-approved.
The managers of an FPCI have much greater scope for managing their investments than those of an FCPI-accredited fund, which is by nature subject to much heavier regulation.
Even if FPCIs are not "tax-exempt" products, the tax treatment of capital gains generated by FPCIs can be attractive if the FPCI is tax-efficient. In this case, the investor (an individual) is exempt from capital gains tax (excluding social security contributions), provided he or she does not receive any distributions during the first 5 years.
For investors looking for performance and diversification, FPCIs have always been a credible and particularly attractive alternative to traditional investments.
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