French Alternative Investment Funds: A (short) practical guide for aspiring asset managers
French law provides alternative asset managers with a comprehensive, flexible, and EU-wide regulatory framework. From AMF declaration under the derogation regime to full authorization, and offering a range of vehicles covering all investor profiles and strategies, France is a leading jurisdiction for structuring, launching, and developing alternative investment fund (AIF) management activities.
1. Regulatory Entry Point: The PMC and the AIFM Derogation Regime
A. PMC Authorization: The Foundation of Any Alternative Management Strategy
The portfolio management company ("PMC") authorized by the French Financial Markets Authority ("AMF") is a pivotal regime for any alternative investment fund ("AIF") management activity in France.
This authorization grants its holder access to the passport provided by the AIFM Directive (Alternative Investment Fund Managers Directive), allowing them to manage and distribute AIFs throughout the European Union member states.
Once authorized and after launching at least one AIF, the PMC can notify the AMF of its intention to exercise its AIFM passport across the European Union. Two types of passports are available:
- the management passport, allowing the PMC to manage AIFs domiciled in other member states; and
- the marketing passport, allowing the distribution of French AIFs throughout the EU.
B. The Derogation Regime: A Streamlined Entry for Seed-Stage Boutiques
For managers in the launch phase, the regime provided by Article 3 of the AIFM Directive allows certain managers to benefit from a derogation regime. These managers are not required to obtain full PMC authorization; a simple declaration to the AMF is sufficient.
This applies to managers whose assets under management do not exceed:
- €100 million for funds employing leverage; and
- €500 million for closed-ended funds, without leverage and with no redemption rights for five years,
This streamlined entry point significantly reduces time-to-market and compliance costs during the critical start-up phase. Once the applicable threshold is met, the manager applies for full AIFM authorization, which grants access to the European passport.
2. The Range of French Investment Vehicles
French law offers a wide range of AIFs, structured according to the targeted investor category.
A. For the retail (non-professional investors)
General Purpose Investment Funds ("FIVG")
Open-ended AIFs subject to AMF approval, FIVGs can invest in a diversified range of assets, under asset allocation and diversification rules designed to provide enhanced protection for retail investors.
SCPIs and OPCIs
The real estate investment company ("SCPI") and the real estate collective investment undertaking (OPCI) are the benchmark real estate vehicles in the French market. They are highly recognized by savers and distribution networks, particularly within the framework of life insurance.
Retail Private Equity Vehicles: FCPR, FCPI, and FIP
The risk capital mutual fund ("FCPR"), the innovation mutual fund ("FCPI"), and the local investment fund ("FIP") are instruments designed to channel individual savings into equity stakes in unlisted SMEs. These vehicles benefit from a clearly defined tax and regulatory framework, favorable to both the manager and the end investor.
B. For Professional and Sophisticated Investors
FPCI and FPS: Structured Framework and Flexibility
The professional private equity fund (FPCI) offers a codified framework, adapted to private equity strategies. The specialized professional fund (FPS), on the other hand, is a true "Swiss Army knife": it can accommodate various strategies — private equity, real estate, patents, real assets, crypto-assets — with great structural flexibility.
The major operational advantage of these vehicles is that they do not require prior approval, but merely a declaration to the AMF. Furthermore, they can accommodate ELTIF-eligible strategies under the ELTIF 2.0 reform.
The SLP and SLPS: Contractual Freedom and Institutional Structuring
The *société de libre partenariat* (SLP), and its variation (stemming from the Green Industry Law) the *société de libre partenariat spéciale* (SLPS), offer extensive contractual freedom for organizing governance (GP/LP) and defining economic flows (waterfall, carried interest).
These vehicles are naturally suited for institutional private equity strategies, due to their compatibility with international fund structuring standards.
"Other AIFs": HoldCos and Co-investment SPVs
Highly popular as lead vehicles or co-investment structures, these entities operate in a regulated environment whenever they pool capital for investment according to a defined investment policy. The level of applicable constraint depends on the assets under management.
Written by Sylvain Clavé and Germain Chaux
For any questions regarding the structuring of an alternative investment fund or obtaining SGP approval from the AMF, please contact us.
