FRANCE - The FRR, the €27.7bn Fonds de Réserve pour les Retraites or French Pensions Reserve Fund, is to put up to 10% of its assets into alternatives as part of a new strategic asset allocation.
It defines alternatives as real estate, public infrastructure, commodity index and private equity.
The new allocation will see a drop in fixed income holdings to 30% from the current 45%. Equities will account for 60% from 55%.
The original allocation was set in 2003. As at June 1 the FRR had 56.3% of its assets in equities, 23.8% in bonds and 19.9% in money market instruments.
The new allocation will see euro zone equities fall to 33% from 38% and ex-euro zone equities upped to 27% from 17%.
As for bonds, euro-zone will fall to 21% from 38% while ex-euro zone will be lifted to 9% from 7%.
The FRR board is seeking to diversify the portfolio “in order to enhance the return while diminishing the global risk”.
The board has also extended the payout period beyond the one that was defined in 2003 – it’s now 2020/2040 instead of 2020/2030.
It follows work by the Conseil d’Orientation des Retraites showing the funding needs of retirement plans will continue to grow after 2030.
The board also set limits on the fund’s risk exposure, by indicating that the asset allocation must not only minimize the risk of capital loss at maturity in 2020, but also maximize the probability of generating about 4.4%.
That would be “at least equal to the average cost of the resources contributed by public policymakers”.