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French roundup: ERAFP, Agirc-Arrco, Cour des Comptes

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ERAFP, the public sector supplementary pension scheme, has tendered mandates for three asset managers to invest €400m in socially responsible equities.

The €20bn scheme is looking to focus on the Pacific region with the mandates, with allocations to stocks in Australia, Hong Kong, Japan, New Zealand and Singapore.

ERAFP said appointed managers should use bottom-up analysis in their long-term active equity strategy while adhering to the fund’s socially responsible investment (SRI) framework and according to its “best-in-class” principles.

“Portfolio companies will be required in particular to comply with international standards on human rights, employment rights, the environment and market conduct,” the fund said.

For the €400m mandate, two asset managers will be selected to run investments, with one-third kept on standby for increasing allocations.

ERAFP currently hires two asset managers running global equity mandates which expire in mid-2015, with the fund preferring to replace the managers with dedicated Pacific equity allocations.

The contract is expected to run for a five-year cycle, with ERAFP retaining the option of extending this for three additional years.

Managers will be expected to outperform the MSCI Pacific index on a long-term basis.

ERAFP recently announced an overhaul of its investment strategy after the French government decreased restrictions on non-bond investments.

From 2015, the fund will be allowed to invest up to 40% in other asset classes, up from its current 25% cap.

Philippe Desfossés, chief executive at the fund, said this would result in a dramatic increase in its equity allocation, along with multi-asset and real estate.

In November, the fund awarded a $400m (€320m) SRI bond mandate to AXA Investment Managers.

In other news, France’s Cour des Comptes, the country’s Court of Audit, is to publish a report highlighting funding issues within private sector supplementary pension schemes.

The report, leaked to news agency Reuters, said the funding crises in the Agirc-Arrco pension fund could increase significantly if unchecked.

The pension fund previously stated its 2014 deficit would be €5.3bn due to high costs and the 2008 financial crisis.

According to Reuters, the report said this deficit would quadruple by 2035 if aspects of the fund’s governance and investment strategy remained unchanged.

Overall, France’s system will be saddled with a combined deficit of €335bn by 2040, based on the Court’s optimistic assumptions of unemployment and growth.

According to Reuters, the report said the pension fund should look to reduce costs by €5bn by 2018 and consider encouraging later retirement dates.

In a statement, Cour des Comptes said it regretted the early publication of the report, which was due to be presented on 18 December.

It said it did not advocate any single solution to fixing the funding gap at Agirc-Arrco but wanted to highlight the scope of possible measures with cooperation between the social partners.

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