The democratisation of private assets
February 18, 2025
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12 min read
Vincent Touraine: Hello and welcome to the IPEM Wealth 2025 Edition here in Cannes as we explore the latest trends in the industry. How is the market doing? What's the outlook for this year? Also, is the democratisation of private assets a good thing for the sector? Our guest is Eric Deram, founder, managing director, managing partner, and CEO of Flexstone, an affiliate of Natixis Investment Managers
First, a quick reminder of what Flexstone is and how you contribute to the private assets industry?
Eric Deram: So, Flexstone is an investment manager dedicated to the private asset sector with a focus on private equity. We have approximately €11 billion in assets under management, which are mostly bespoke programs for our clients, the vast majority of whom are institutional investors. We build and manage investment programs for these investors, which represent 75% of our assets under management. In addition to this, we have bespoke programs or commingled funds, which are secondaries funds, co-investment funds, as well as niche funds for certain categories of clients. We have global coverage with offices in Paris, Geneva, New York, and Singapore. We have approximately 60 employees across those four offices. One thing that is important to remember about Flexstone is we focus on the smaller end of the mid-markets. For us, that means investing in funds which are between €50 to €1.5 billion on average, and when we do co-investment, we talk about enterprise value between €50 and €500 million.
VT: Given the context on the private equity market in 2024, how do you see 2025? What's your outlook?
ED: So, reasonably optimistic. 2024 obviously was a bit disappointing, right? We all started 2024 very bullish about the environment, about the market. What happened is the secondary market was quite positive: €162 billion of transactions throughout the year; that is the record year. But if you look at M&A in the buyout sector, it has experienced the third decrease in three years due to high interest rates, uncertainty in the environment, the geopolitical environment, the election in the US, which is obviously the elephant in the room. So, all these factors combined to create an environment where the spread between bid and ask remained too high, liquidity was not necessarily forthcoming, and therefore activity, generally speaking, has been disappointing. Fundraising was okay, but M&A exits and new investments were again the third year decrease in a row.
Now for 2025, I think we have a few things that have been clarified. One of them is the election, of course, in the US, but also the trajectory of interest rates is at worst stable, probably down, and that is obviously very positive for the industry in general. The geopolitical environment is still quite uncertain, with issues in China, Eastern Europe with Ukraine, and political turmoil in France and Germany, absolutely, but also the Middle East. Obviously, investors, regardless of the asset class, hate uncertainty. We're seeing a little bit of clarification of what is going to happen in 2025, and that is positive for business. Perhaps, you know, the final comment is if we look at our numbers, we track the number of transactions that we see and the exits we have on a quarterly basis, and it was certainly up during the last quarter of 2024, so that's positive.
VT: What are today's main issues for the private equity market? How challenging is the environment? You started answering this question.
ED: Yes, I think one thing we haven't talked about yet is the lack of liquidity, obviously, because of the lack of exits and M&A activity generally in the market. LPs haven't received the cash back from the investments. If we look at our own program, even though we're in the smaller end of the market and that has not suffered as much as the larger end because the debt environment was more positive for smaller transactions, we are still probably about a year, two years behind in terms of cash flow projections of cash coming back. Obviously, our investors are waiting for this, you know, profits to come back before they can recommit to the industry. So, I think this is the main issue going forward. The other issue, but I think we'll talk about it, is what's going to happen in the U.S., which is the largest market.
VT: Absolutely. Now, let's talk about the democratisation of private assets. Can it come from private equity?
ED: I think, look, if you step back a little bit and you look at private wealth, I think most people already have private assets, and these are real estate, you know, houses, flats, right? So, funny enough, investors, including private investors, are used to private assets and to illiquidity, right? I mean, what's more illiquid than a house? Now, that being said, I think democratisation is a very positive trend for the asset class and for private equity in particular. Private equity is the largest, by far, subclass of private assets if you exclude real estate. Subclasses like private debt and infrastructure are growing quite nicely, but they're still substantially smaller than the private equity asset class. I think it is easier to understand private equity; everybody understands what shares, you know, stocks are in the public market. It's the same thing for private equity. Obviously, they are not traded, which creates certain constraints, but at the end of the day, you're investing and you're buying shares of SMEs all over the world, and I think you're investing in the real economy. There are plenty of benefits for private investors that we can talk about.
VT: Is regulation helping in that field?
ED: Yes, and I think it is a good trend in Europe for sure, in France specifically with the Loi industrie verte, but also in Europe with ELTIF. Generally speaking, I think it is time for the regulator to recognise that private equity or private assets, so private companies, represent 80% plus of the economy on a worldwide basis. I think it is vital for the regulator to make sure that you and I, every individual investor, can invest in 80% plus of the economy. There’s been a lot of movement from the regulator to facilitate that. Obviously, there are risks—we'll talk about it in a minute—but I think it has been a good trend and a very positive evolution of the market.
VT: Let's talk about it now. What are the risks of too much democratisation?
ED: I see three main risks that are very important to keep in mind. The first one is professionalism; the second one is cost; and the third one is liquidity. If I take them in that order, professionalism is very important. Private equity is a real asset class which requires specific skills, and because of the democratisation trend of private equity, a lot of people are trying to move into that sector. We can see a lot of new offering products that I would not define as institutional quality, even though they are being sold to private individuals. I think you need to remain institutional; so quality is one of the first issues.
The second issue is cost. Private assets are a very active investment strategy. Private equity is among the private assets, and as a result, it is costly. It's costly also for institutional investors, but one has to be careful, and the industry has to be careful not to add a lot of cost layers just because this is going to be distributed to retail investors. Because at the end of the day, if you load too many costs into a retail product, everybody will be disappointed, and that will kill the goods, basically.
And the third one is liquidity. Private assets, like we talk about real estate, are illiquid investment strategies. These products, even though they have liquidity features, should not be sold as liquid products. I think it is very important to keep that in mind.
VT: Speaking of risks, is the return of Donald Trump changing anything for the private equity market?
ED: So, it may or may not. If you look at history, we haven't seen a lot of impact regardless of whoever was sitting at the Resolute Desk in the White House. That being said, if you look at his policies, some of them could be extremely good for business in general and therefore for private equity. Again, 80% of the economy are private companies, and what is good for the economy should be good for private equity—exactly. Regulation is one of them.
On the other hand, you have a lot of policies which seem to be very inflationary by nature, you know, the tariffs, the immigration expulsion of a lot of low-cost workers that could have very big inflationary impacts. In fact, if you talk to the Fed today, I think they're saying they're probably not going to reduce interest rates as much as they planned to. So, we have to see. But I think the bottom line is, and the comfort is, two things. One is that regardless of who is at the White House, it hasn't had a lot of impact on the economy and therefore on private equity. The second thing is I think the last Trump administration was called the “Mark to Market Administration.” President Trump looks at the stock exchange, and if the stock exchange goes down, he realises that something is wrong, and therefore he changes policies. I think the same thing is likely to happen in Trump 2.0.
VT: Finally, any messages to the wealth professionals and their clients?
ED: Yes, as I said earlier, private equity is a subclass of assets that has been around for a long time. There are numerous professionals of high quality who can offer very exciting products. So, if we look at Flexstone specifically, we've been managing Evergreen programs for institutional investors for 20 years. In fact, we're celebrating, I started the predecessor company exactly 20 years ago, two days from now, on the 31st of January 2005. Since then, we've been managing those Evergreen programs. Whatever we do for private clients should have the same quality and the same investment process and rigor that we've been doing for 20 years consistently for institutional investors, and I think that is very important. Once you have that, you have the perspective of being able to build a very diversified portfolio with probably very attractive returns as well.
