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A new president for France13/06/2007. Source: SJ Berwin. Maxime Dequesne and Pierre-Louis Perin
 Although, since his election as French president, there have been no direct public statements by Nicolas Sarkozy or his new government on private equity, an analysis of his campaign speeches - and the early measures taken by his government - do give some hints to the incoming French administration's approach to private equity, says SJ Berwin.
During the presidential campaign, strong emphasis was placed by Sarkozy on "excessive" personal compensation schemes (mainly a reaction to a few scandals on stock options that arose). It is not clear what, if any, action will follow - but fund managers will watch any developments closely.
Nicolas Sarkozy has also been advocating the necessity to reinstate work as a central value of French society, and argues that profits should be shared widely among employees (and not only with the top managers). This trend has been a strong theme of debates at the French national private equity association - the AFIC - for the past two years, and was recently exemplified when PAI Partners redistributed 5% of its profits in the Saur transaction to the French employees of the group. Perhaps the French government might look to private equity as an innovator in this regard.
Sarkozy has also repeatedly insisted that measures should be taken to attract more money to finance small and medium sized businesses ("SMEs"). As a first step, he has promised tax incentives to the highest taxpayers - those subject to the wealth tax ("Impôt Solidarité Fortune") - for monies invested in new SMEs. The details of this measure have not yet been unveiled, but it is likely that some schemes will be put in place for venture capital and "local" investment funds ("Fonds d'Investissement de Proximité"). Also on the agenda of the new president is a European Small Business Act.
During his campaign, Nicolas Sarkozy has stigmatized hedge funds as potentially destructive of value. But some of his remarks on "hedge funds" actually seemed to be more applicable to certain types of private equity funds. Those remarks could see the start of a movement towards greater regulation of offshore funds, perhaps fuelled by the fact the Germany has put this issue on the agenda for next month's G8 summit in Heiligendamm.
The Sarkozy government is due to start negotiations on reforms of the state retirement schemes to be implemented in early 2008. Most experts agree that, in addition to the state pension schemes, access to and extensive use of pension funds will be necessary to supplement the very overdrawn so called "special pension regimes" (providing for advantages enjoyed by railwaymen, state utility workers, and some other sectors of the work-force, including farmers, soldiers and MPs).
ome of the additional funding for pension funds will surely be driven to the private equity sector. This seems very likely given that, when he was Finance Minister, Nicolas Sarkozy secured a pledge from life insurance companies to allocate €5billion to private equity funds to finance SMEs.
All in all, Nicolas Sarkozy's election as French president will probably have a positive indirect impact on the French private equity market, supported by his enthusiasm for a more market oriented France.
It is true that the emphasis of the new President on the "value of work" could lead to some restrictive measures on capital gains, and Nicolas Sarkozy's views on the private equity industry have, at this stage, been more reserved than enthusiastic. But the private equity community remains optimistic that, in reality, the attitude of the new government will be favourable to the industry.
Maxime Dequesne and Pierre-Louis Perin
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on its services to the private equity industry please contact Jonathan Blake or Simon Witney in its London office +44 (0)20 7533 2222 or visit our website at www.sjberwin.com
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