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French public sector funds tender small cap, EM credit mandates

Fonds de réserve pour les retraites (FRR) has launched a public tender for two small-cap equity mandates incorporating environmental, social and governance (ESG) criteria.

The €36bn French pension reserve fund plans to allocate €1.1bn to European small cap companies, and €600m to the shares of listed French small-caps.

It said it wanted to “underline its role as a long-term responsible investor at the service of the real economy and increase its impact on the latter”. 

Companies should have a market capitalisation of no more than €7bn at the time of investment, FRR said.

Performance would be measured against the FTSE Small Cap or MSCI Small Cap indices for the respective regions – developed Europe and France – over a complete market cycle, on a three-year rolling basis.

Managers would be allowed a tracking error of up to 10% per year.

They should demonstrate that their management process integrated ESG considerations, FRR said. Specifically, managers should take into account ESG criteria when evaluating investments, engage with investee companies, and factor in climate change.

Managers would need to report both quantitatively and qualitatively on developments at and progress made by investee companies.

Up to five individual mandates could be awarded for European small cap investments, and up to six for the allocation to French small caps.

ERAFP targets emerging market credit

ERAFP, the €30bn pension fund for French public servants, has launched a search for emerging market credit managers. The initial allocation was likely to be around €160m, with an objective of increasing this to €300m over three years. 

The mandate should be managed in accordance with ERAFP’s socially responsible investment policies, it said.

ERAFP said it would appoint three managers, two of which would be on standby.

The pension fund said it wanted managers to run a portfolio of non-benchmarked conviction holdings and to pursue a buy-and-hold strategy with a view to limiting turnover. 

The investment universe would be investment grade and good quality high-yield debt, primarily in hard currency. Performance will be compared with the JP Morgan CEMBI Broad Diversified index or another index chosen at ERAFP’s discretion.

The pension fund said it would not set a specific tracking error limit.

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