France Invest: Addressing inequality part of PE’s ‘licence to operate’

The industrial association wants all of its GP members to have profit sharing schemes in place by 2030.

Private markets firms have a responsibility to address inequality through profit sharing and employee ownership schemes, according to Alexis Dupont, managing director at France Invest.

The industry association for French private equity professionals counts more than 420 GPs among its members. It has set a target for all the companies in its members’ portfolios to have profit-sharing schemes by 2030, with 85 percent having an employee ownership scheme.

“The private equity environment is tough, it’s challenging, but overall people are working in quite a privileged environment,” Dupont told New Private Markets. “They see that, compared to regular people in the street, they also have to give back somehow. That’s part of their licence to operate over time.”

Several French managers have begun to address inequality with their strategies in recent years. Energy transition GP TiLT Capital, for example, has made a quarter of its carried interest contingent on meeting targets relating to four “transversal” ESG themes, one of which is the financial inclusion of all employees in a portfolio company’s equity story. Meanwhile, GP stakes investor Armen has tied part of its carried interest to a goal of having 50 percent of employees at its GPs’ portfolio companies involved in schemes that see them benefit from the proceeds of an exit.

France Invest’s activity in this area is in part in due to the French political climate. The French government has done more than most to encourage profit sharing among businesses. The PACTE Act, a suite of reforms focused on the growth and transformation of business, was enacted in 2019 and facilitated profit share schemes that were tax-free for both the employer and employee.

There is also pressure coming from investors. Addressing inequality “really resonates with our domestic LPs”, Dupont said. The issue is also getting more attention among international LPs, although some “still have a more transactional perspective when it comes to investment”.


While profit sharing schemes are relatively straightforward for a GP to introduce when taking a controlling stake in a company, there are challenges when it comes to minority investments.

“When you’re not fully in charge of a firm and you have a business owner in front of you owning the majority of the shares, things are a bit more difficult,” explained Dupont. “These business owners may be reluctant themselves to share the vast majority of their profits.

“The question to ask yourself as a minority investor now is: do you really want to spend seven to eight years invested in a firm where the business owner is not even open to considering some sort of a profit sharing mechanism for his employees? I think the answer is probably no. That’s a red flag.”

Equally, there are challenges when broadening out the initiative to other asset classes. “The main question to be asked is for venture capital,” said Dupont. “Profit sharing requires profits (although this is not necessarily the case for employee ownership). It’s a bit deceptive to explain to employees of these start-ups that you will share immediately some part of the profit if you’re not making any. So, you have to adjust that. The dedicated start-up employee ownership scheme we have in France is better suited.”

While the number of members with profit sharing schemes is steadily increasing, the number of employee ownership schemes is proving hard to move. “Employee ownership is a bit more complex than other profit-sharing mechanisms, and for a very simple reason, which is dilution. So that’s something we need to address. I think that will be one of our priorities in the coming years because the rest is really moving forward very quickly,” Dupont explained.