Alternative Investment Funds: positioning France as a central player

By Fémy Mouftaou, Head of Fund Strategy for Continental Europe at IQ-EQ

A significant milestone for the French asset management industry was marked on 3 July 2024 with the enactment of Ordinance No. 2024-662, which aims to modernise the framework for alternative investment funds (AIFs). This ordinance is part of the Green Industry Law, promulgated in October 2023, and aligns with the European ELTIF 2.0 regulation. Its primary objective is to enhance France’s attractiveness as a financial hub.

Modernising French law-based funds

This ordinance serves one clear, unambiguous goal: to equip and modernise French law-based structures to match the standards of leading European markets. It introduces numerous provisions for “non-professional” investment vehicles, with twelve measures aimed at clarifying and adapting these vehicles in line with the ELTIF 2.0 regulation. This includes simplifying indirect investments in Venture Capital Funds (FCPRs) and their eligibility for legal quotas, facilitating retail distribution of these fund-of-funds strategies. Additionally, the ordinance will significantly enhance employee savings funds, enabling them to invest in ELTIF 2.0 funds.

Article 15 further clarifies the rules relating to “feeder” AIFs, which invest at least 85% in another AIF, ensuring greater transparency for investors and better risk management.

Article 4: A new status to leverage

Among the measures introduced, one of the most important is the creation of a new form of specialised professional fund (FPS), structured as a non-legal entity: the special limited partnership company (SLPS). This new structure, a genuine revolution within the French Civil Code, designed particularly for investors who could not consider the limited partnership company as tax-transparent due to its “legal personality” status (notably Belgian and Canadian investors). Similarly to Luxembourg’s special limited partnership (SCSp), a structure with no legal personality, the SLPS will now provide a range of competitive vehicles.

Enhanced competitiveness to build on

Alternative investment funds stand to gain numerous benefits from this reform. First, the new form of non-legal entity FPS opens up new perspectives for French fund managers, enabling them to compete more effectively with their European counterparts. This structure offers greater flexibility, akin to Luxembourg and UK investment vehicles, narrowing the “competitiveness gap” that previously existed. This flexibility enables managers to respond more swiftly to market opportunities and design solutions tailored to international investors. Another significant update is that professional funds can now issue debt securities, which was previously not allowed.

Furthermore, the simplification of rules for non-professional AIFs is expected to attract a new category of investors, particularly individuals seeking more accessible investment products. Finally, the opening of employee savings funds to ELTIF 2.0 funds presents a major opportunity for fund managers. By channeling employee savings into long-term projects, these funds can play a key role in financing the real economy while offering attractive returns to savers.

In conclusion, the ordinance of July 3, 2024, presents numerous opportunities for alternative investment funds. By modernising the regulatory framework and simplifying procedures, it positions France as a central player in the evolving landscape of European finance.