Private equity, or equity investing, attracts a growing number of individual investors seeking diversification and long-term performance. Long restricted to institutional investors and large fortunes, non-listed investments are now opening up to a broader audience thanks to new platforms. But this democratization comes with a major challenge: unlike listed markets, private equity is characterized by a substantial performance gap between the best funds and the worst. Choosing your fund well is therefore not a trivial matter; it is the decisive factor in the success of your investment.
Solutions like Fundora now enable individuals to access a selection of private equity funds that were previously inaccessible. For those who wish to invest in private equity with Fundora, as with any investor entering this asset class, one must understand the criteria that distinguish a good fund from a mediocre one. Here are the essential points to review before committing.
Why fund selection is decisive
In private equity, the dispersion of performances is far more pronounced than in listed markets. According to the France Invest and EY net performance study (end of 2024), private equity generated on average 12.4% per year over ten years, versus 8.9% per year for the CAC 40 with dividends reinvested. On paper, the performance gap argues in favor of the unlisted.
But this average masks very contrasting realities. Still according to France Invest and EY, funds in the top quartile show a net IRR of 25.4% per year, while the bottom quartile falls by 6.2% per year. The dispersion thus reaches more than 31 percentage points between the best and worst funds.
In other words, two investors entering the same asset class at the same time can achieve radically different results depending on the fund they chose. In listed markets, an index investor captures roughly the market’s average performance. In private equity, this reasoning does not hold: performance directly depends on the quality of the management team and its ability to source, support, and exit good companies. That is why upstream selection takes precedence over everything else.
1. Analyze the track record of the management team
Past performance never guarantees future results, but it remains the most telling indicator of a team’s ability to create value over the long term. Several elements deserve particular attention :
- The consistency of performance across several funds in succession, not a single standout success. A team that delivers steady results across multiple vintages inspires more confidence than a team with an irregular track record or dependent on a single big operation.
- The actual multiples realized on funds already closed, through indicators such as the invested capital multiple (TVPI) or the net internal rate of return (IRR) after fees.
- The source of the performance : it is essential to distinguish value created by operational improvements in the companies (revenue growth, margin gains, international expansion) from that generated solely by financial leverage or by a favorable market context.
A good manager does not simply buy and sell at the right moment: they actively support the companies in their portfolio to help them grow. This transformative capability is what permanently separates the best teams from the rest.
2. Understand the investment strategy
Private equity does not denote a single approach, but a family of strategies with very different risk profiles, horizons and drivers of performance. Understanding these nuances is essential to choose a fund aligned with your objectives:
- Venture capital finances startups in creation or high-growth phases. The potential gain is high, but the risk is correspondingly high, and the investment horizon often spans seven to twelve years.
- Growth equity supports already established, profitable or near-profitable companies, in an acceleration phase. The risk profile is intermediate.
- Leveraged buyouts (LBO) target mature, cash-generating companies acquired partly with debt. It is one of the historical and most important segments of private equity.
- Secondaries involve buying stakes in funds already invested. This approach often offers better visibility into the underlying assets, immediate diversification, and typically a shorter exit horizon than primary investments.
A good fund demonstrates a clear, readable, and coherent strategy, whether it focuses on a specific segment or deliberately combines several approaches. Beware of funds whose strategy remains vague or that seem to change course with opportunities: investment discipline is often correlated with long-term performance.
3. Check the regulatory framework
Investing in private equity should never be done outside a regulated framework. This is an especially important point since this asset class is less liquid and less transparent than listed markets. Always favor funds managed by a management company authorized by the Autorité des marchés financiers (AMF).
This authorization is not a mere administrative formality. It imposes strict obligations in risk management, asset separation, investor transparency, and protection of their interests. An AMF-authorized management company is subject to regular oversight and must adhere to a set of prudential rules.
At Fundora, for example, the management is provided by Kyoseil Asset Management, an AMF-authorized management company, within a mandate framework. This type of structure guarantees strict regulatory oversight, whereas some opportunistic offers operate outside the rules. Before any investment, verify the identity of the management company, its license number, and the exact nature of the proposed investment vehicle.
4. Review the fee structure and level
Fees directly impact the net performance perceived by the investor, and private equity is no exception. A fund typically comprises several layers of fees that should be clearly identified:
- Annual management fees, usually between 1.5% and 2.5% of invested capital, which compensate the team’s work.
- Carried interest, i.e., a share of the upside (about 20% on average) paid to the management team beyond a minimum return hurdle. This mechanism, in principle, aligns the manager’s interests with those of the investors, since the manager only benefits above a certain level of performance.
- Any entry or exit fees, as well as administrative fees related to structuring.
The aim is not to relentlessly seek the lowest fees. Quality management has a cost, and a cheap but poorly managed fund will end up costing far more than a well-performing fund with slightly higher fees. The important thing is that the fee level is transparent, clearly communicated, and justified by the value added by the team.
5. Assess transparency and reporting
Transparency is an essential marker of a fund’s seriousness. Private equity, by its nature, is less liquid and less closely tracked than listed markets, so the quality of information provided makes all the difference. A serious fund provides regular visibility into portfolio companies, their valuations, the progress of the strategy, and any exits completed.
Before investing, inquire about the frequency of reporting, the level of detail, and the clarity of the information transmitted. Can you know exactly what you are invested in? Are valuations updated and explained? Are fees broken out line by line? A lack of transparency, vague information, or infrequent reporting should alert you and prompt caution.
6. Consider liquidity and horizon
Private equity is, by design, an illiquid investment. The invested capital is locked in for several years, typically three to ten years depending on the chosen strategy. Unlike a stock investment, you cannot withdraw your funds overnight.
This characteristic is not a flaw in itself: it is precisely this long immobilization that allows fund managers to deeply transform companies and extract value from them. This is what is known as the illiquidity premium, i.e., the extra return expected in exchange for capital being tied up.
In practice, only invest in private equity amounts you will not need in the short or medium term, and ensure that the fund’s horizon is compatible with your personal plans. Secondary strategies can offer shorter horizons and better visibility, which makes them an attractive entry point for investors looking to limit the duration of capital immobilization.
7. Diversify to reduce risk
Given the strong dispersion of performances discussed above, diversification is common sense in private equity. Concentrating all of your investment in a single fund or a single company exposes you to high risk. Conversely, spreading your capital across several funds, several strategies (venture, LBO, secondary) and several vintages helps smooth returns and reduces the impact of a potential isolated failure.
Specialized platforms facilitate this diversification by giving access to multiple strategies within a single interface, something that was previously difficult for a retail investor acting alone. This approach does not eliminate the risk of capital loss, but it helps to manage it.
In summary
Choosing a good private equity fund rests on a bundle of complementary criteria: the strength and regularity of the management team, the clarity of the investment strategy, the rigor of the regulatory framework, the transparency of reporting, the level of fees, alignment with your investment horizon, and the diversification of your portfolio. The strong dispersion of performances in private markets makes this analysis not only useful but essential.
Platforms like Fundora simplify this process by giving access to a selection of funds managed by an AMF-authorized company, with visibility into the portfolio assets. They do not, however, relieve the investor of conducting their own analysis: each person must decide based on their risk profile, wealth objectives, and horizon. When chosen well, private equity can become a true driver of diversification and performance in a long-term allocation.
Investing in private equity carries a risk of capital loss. Past performance does not guarantee future results, and return objectives are not guaranteed.
All information provided is, by nature, generic. It does not take into account your personal situation and does not constitute, in any way, personalized recommendations for executing transactions and cannot be considered investment advice or any incentive to buy or sell financial instruments. The reader is solely responsible for using the information provided, and no recourse against Cafedelabourse.com’s publisher can be sought. The publisher’s liability cannot be engaged in case of error, omission, or imprudent investment.
