PRO BTP is an organisation created by the French construction industry for the French construction industry. Its job is to run the complementary system of social protection, insurance and pensions for more than three million people who belong to the BTP – ‘batiments et travaux publics’.
The organisation was set up in 1993 by the social partners – the employers’ federations and the employees’ trade unions – as a paritarian, non-profit making association that provides the human and technical resources for social protection.
It covers 1.27m employees, including 157,000 managers, 240,000 white collar workers, technicians and foremen (known as etam) and 852,000 manual workers. The employees belong to some 460,000 companies throughout France, ranging from the largest construction firms, small and medium enterprises and 250,000 building craftsmen or ‘artisans’. The system also includes 1.85m pensioners and beneficiaries.
PRO BTP originally comprised three organisations for different categories of workers: one for blue collar workers (ouvriers), one for white collar workers (etam) and one for managers (cadres). Each organisation had its own provident institutions and pension funds.
At the beginning of 1997 two of the three pension funds, CBTPR and the CNRO, the pension funds linked to the ARRCO nationwide complementary system merged to become a single fund, BTP-RETRAITE. And at the end of last year the three provident institutions, CNPBTPIC, the CBTP and the CNPO were merged to become BTP Prévoyance.
BTP Prévoyance, like PRO BTP, is a paritarian institution, and provides benefits in cases of invalidity, critical illness or death It also provides health benefits and sick leave payment, and lump sums on retirement for workers. All these benefits are paid on top of any social security benefits.
Stéphan Reuge, the director of BTP Prévoyance, says: “The provident institution is our main business. Pensions not a major part of our activity at the present time, although this may change in the future.” Currently pensions represent some 10% of the PRO BTP’s liabilities.
Pensions liabilities are small, principally because the two pension funds, BTP-RETRAITE and CNRBTPIC, which is linked to the second nationwide complementary scheme, AGIRC, are based on the ‘retraite par repartition’ or pay as you go system. “Since the pension activities are within the repartition system you don’t need to run as much money as you would if it was within a capitalisation system,” Reuge points out. “PRO BTP does not levy pension contributions. These are decided on a national basis. This is quite different from the situation with the insurance companies and the provident institution, where the construction sector is totally in charge of managing the social protection of the branch, both in contributions and amounts of benefits.”
Pension benefits are also outside the control of PRO BTP. “Because we have many more retired people than we have active people, the contributions are not sufficient to cover the pensions we pay,” says Reuge. “But we are part of the ARRCO and the AGIRC systems and therefore all the other institutions provide us with compensation payments to cover what is insufficient in our branch.”
PRO BTP set up its own asset management company, SAID Gestion, in 1990 to run the money of all the institutions of the group. The company was renamed PRO BTP Finance in May. PRO BTP Finance’s total portfolio is currently worth around E6bn. The assets of BTP Prévoyance account for 50% of this, the two insurance companies 30%, and the employee profit-sharing company and the two pension institutions each 10%.
The different activities of PRO BTP require quite different investment strategies, says Pierre Ramadier, the PRO BTP Finance board member responsible for fund management. “The reserves for the pension institutions are very short-term so we invest in the money market rather than in the bond or equity markets. Contributions are paid by the companies at the end of each quarter and we only have two months before we pay the pensions.”
Ramadier says there is often little cash left at the end of the quarter. “But we don’t have a problem. We are never in the red at the end of the month because we are part of the AGIRC and ARRCO compensation system. So retired people don’t need to worry whether they are going to receive their pensions.”
Provident fund and insurance company reserves have longer horizons. “The reserves of the BTP Prévoyance and the insurance companies have a much more long-term purpose, so we invest them in the equities markets,” says Ramadier. However, the asset allocations of provident company and the insurance companies.
“For the provident company we will invest an average rate of 20% in the equity market, compared with no more than 5% or 10% for the insurance company reserves,” he says. “We have more equity investment for the provident company because we can take more risks.”
Overall, Euro-zone equities account for 15% of the assets under management, and global equities 3%. The bulk of the assets (67%) are invested in fixed income instruments. Within the equity allocation, 60% is invested in Euro-zone equities, 20% is invested in French mid cap companies, and 20% is invested in the international equity market, mainly the US and Japan.
PRO BTP Finance is a relatively lean organisation with 20 investment staff: five in the front office, with three bond managers and two equity portfolio managers in the front office, four in the middle office risk management and seven in back office administration.
Consequently, Ramadier says, they do not have the human resources to invest directly in the US and Japan market. Instead they have gone to external equity funds for the US and Japan asset allocation.
PRO BTP Finance has created six investment funds – three equity and three bond funds – under the Regard label, named after the group’s Paris headquarters in the rue de Regard.
The flagship equity fund, the E517m Regard Actions Euro, is invested in Euro-zone large caps. The E149m Regard Actions France invests principally in mid cap French companies and the E124m Regard Actions Diversifiées is invested in a wide range of global equities.
Of the bond funds, the E396m Regard Obligations invests in Euro-zone government bonds; the E101m Regard Rendement invests in investment grade corporate bonds and the E69m Regard Convertible invests in Eurozone convertible bonds.
All PRO BTP institutions – including the profit-sharing company and the insurance companies – are invested across these investment funds.
The investment strategy is not tied slavishly to a benchmark, says Ramadier “Of course we have some targets to beat but we don’t have to stick to a benchmark, fortunately.” This, he says, gives them more freedom the leading French asset managers. “It is also because we have only 10% or 20% in equities, so PRO BTP say we can have some more risk. It would be different if the allocation was two or three times as great.”
For example, Regard Actions Euro, the flagship equity fund, can move 4% either side of the Eurostoxx 50, while Regard Actions France can move 8% against the CAC 40. The strategy for bond investments is similar. For example, Regard Obligations, a fund with a duration of around six years, can move 1% outside the CNO Etrix 5/7 years.
However, internal investment restrictions are tighter than national regulations, says Ramadier. “The construction branch has decided that the way we run our money must be more secure than what is allowed by the national regulations. We have a 30% limit for equity investment. The French code for social security, allows a much higher rate, and institutions in France generally have a much higher equity allocation than we do as a proportion of assets.
“In the bond market also we have internal restrictions on the kind of bond we can use. We do not invest in bonds below triple B. And the market for triple B to single A is rather limited.”
The restriction on equity investment largely accounts for PRO BTP Finance’s use of convertible bonds, which account for 10% of assets, says Ramadier. “The reason we went into convertible bonds originally was that we couldn’t invest a lot of money on the equity markets because of the financial policy. So we decided to invest some money in the convertible bond market as a way of getting exposure in the equity market without taking all the risk.”
The investment income that PRO BTP Finance earned has been useful to PRO BTP institutions like BTP Prévoyance, says Stéphan Reuge. “In the past the provident institution was run solely on the PAYG system, and there were no technical provisions to cover the benefits. But in 1990 there was a major change in the French regulations so that all institutions, including insurers, had to be run as capitalisation systems. To move in this way you had to have an additional contribution in 1998. The increase was a little less than it would have been without this investment income.”