The Uncotée Component: A Closer Look at France’s Green Industry Law

France’s 2023 green industry law, specifically the “uncotée” (unlisted) component, is now in effect, compelling insurers to allocate a portion of specific savings towards unlisted assets. This mandate, operational as late October 2024, is designed to channel investments from life insurance contracts and retirement savings plans (PER) into the “real economy.”

Understanding Unlisted Assets: Private Equity, Debt, and Green Infrastructure

The “uncotée” category encompasses various investment vehicles, including:

• Private Equity: funds that acquire shares in businesses (e.g., Eurazeo, Peqan).
• Private Debt: Supporting companies through loans (e.g., Opale Capital, Andera Partners, Archinvest).
• Green Infrastructure Funds: Investments in sustainable projects like energy and water networks (e.g., Antin Infrastructure Partners, Ardian, Infravia CP).

Impact on Savers: Managed vs. Free Contracts

The new regulations primarily affect savers who have opted for managed contracts within their PER or life insurance policies. Those wiht free management options are exempt. For managed PER contracts, a minimum allocation to unlisted assets is now mandatory, ranging from 2% to 15% depending on the investor’s risk profile. Life insurance policies face a similar requirement,with the unlisted asset share varying from 0% for prudent profiles to 8% for dynamic profiles.

The Government’s Objective: Steering Savings Towards the Real economy

The French government aims to redirect approximately €5 billion annually from French savings into the “real economy.” This initiative seeks to move funds away from traditional, low-yield euro funds and into companies, fostering economic growth and innovation. The promise is to provide access to the possibly higher returns associated with private equity funds, previously accessible mainly to high-net-worth individuals.

The goal is to stimulate economic activity by directing capital towards businesses and infrastructure projects that drive growth and create jobs.

Realistic Expectations: Balancing Returns and Risks

While past returns on private equity have been attractive, experts caution against expecting similar performance in retail investment products. Antoine Delon, president of Linxea, suggests that returns for general public offerings (“retail” in industry jargon) are more likely to be around 6%. The Financial Markets authority (AMF) reports that evergreen FCPRs (common risk investment funds), which offer continuous buying and selling, currently show a median performance of 5%. This evergreen format is particularly suitable for life insurance investments due to its liquidity.

The performance of the general public envelopes, called “retail” in jargon, should rather be around 6%
Antoine Delon, president of Linxea

The Rise of Evergreen Funds

The evergreen fund structure is gaining traction as the preferred method for incorporating uncotée assets into life insurance products. Unlike closed-end funds with fixed investment periods, evergreen funds remain perpetually open for investment and redemption. This structure aligns well with the liquidity requirements of life insurance policies, allowing insurers to manage cash flows effectively while maintaining exposure to unlisted assets.