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FRR, ERAFP make commitments to new debt fund for SME projects

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FRANCE – France’s €36.6bn Fonds de Réserve pour les Retraites (FRR) has invested €120m in a new debt fund launched by president François Hollande’s government this month that aims to help finance small and medium-sized enterprises (SMEs).

The fund, called NOVO, was set up by finance minister Pierre Moscovici on 10 July, with the state-owned financial institution Caisse des Dépôts making an initial investment of €100m.

So far, 17 French insurance companies have expressed interest in the fund, which has a total size of €1bn and is expected to reach maturity in 10 years’ time.

FRR’s investment comes in addition to the capital already committed by French insurers and is part of the reserve fund’s plan to diversify its investment strategy.

According to the FRR, the new commitment to NOVO is also in line with its strategy to find financial instruments presenting an attractive risk/return profile.

Alain Vasselle, president of the FRR’s supervisory board, said: “We do have a very well diversified investment strategy, which aims to provide the best risk-adjusted returns and enables us to meet our €2.1bn annual payment commitment to the Caisse d’Amortissement de la Dette Sociale (CADES).

“This investment strategy has spared us from some serious financial shocks seen in 2011 and also allowed us to achieve a strong performance in 2012.”

The annual payment to the CADES was set under the 2010 Social Security reforms introduced by the previous government.

Under this legislation, the FRR was committed to make 14 annual payments of €2.1bn per year to the CADES, which is used to refinance the debt incurred to pay pensions.

The FRR went on to say that, like many investors, the reserve fund is looking for products yielding much more than developed-market government bonds, but stressed that this quest of performance could not be reached without carefully monitoring risks.

“From this point of view,” the FRR added, “the NOVO debt vehicle offers the right risk/return profile thanks to the quality of debt instruments and projects offered by the SMEs the vehicle will help finance.”

Another large French pension scheme, the €14bn pension fund for French civil servants (ERAFP), is also understood to be investing into the fund.

Contacted by IPE, a spokeswoman for ERAFP confirmed the investment but declined to comment, saying that the legal arrangement was not yet finalised.

At this stage, the commitment made by ERAFP into the NOVO fund is still unknown.

The debt vehicle, which will offer long-term financing of 5-7 years, will charge companies an interest rate of 4-6%.

Additionally, SMEs seeking to tap into the NOVO fund will have access to loans of between €10m and €50m.

With this fund, the Caisse des Dépôts expects to finance between 30 and 40 SMEs projects over the next 10 years.

BNP Paribas Investment Partners was appointed by France’s Caisse des Dépôts earlier this month to manage the fund.

In a statement, BNP said the fund backed by Caisse and the French Federation of Insurance Companies was a “major step” in launching a €1bn fund.

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