FRANCE - The €32bn Fonds de Réserve pour les Retraites (FRR) has started a temporary and limited exposure to emerging market equities before tendering a full mandate in summer.
"The FRR will enter into a formal and international tendering process this year to choose its external managers for emerging equities. When this process is finished the temporary exposure via ETFs will probably vanish," Christophe Aubin, head of investment strategy and risk budgeting at FRR, told IPE.
At the beginning of this year FRR decided to invest an amount of less than 1% of its portfolio in ETFs for exposure to emerging market equities, it was initially reported by bfinance. The size of the eventual mandate has not been fixed yet but it will be over 1%, Aubin confirmed.
"We knew in advance that the tendering process would take quite a while for the FRR. So, we decided to get a limited and temporary exposure to this asset class via ETFs," Aubin said.
"Emerging market investments are used to improve the long-run risk-return ratio of our global portfolio," he added.
Aubin also said the fund believes in the long-term perspectives in this market: "In about 20 to 30 years time these countries will benefit from a higher GDP growth than developed countries."
After another year of outperformance over developed markets, Maarten-Jan Bakkum, strategist with the ABN AMRO Asset Management emerging markets equity team, was a little more cautious about the performance of emerging markets in 2007.
"While some markets continue to look promising, falls in oil and commodity prices from last year's peaks are undermining the prospects for others," he said in a press release.
"Markets that should do well in 2007 are likely to be the ones where interest rates can fall the most, where high raw material prices fuel domestic liquidity and credit growth, and where workers' remittances are pushing up consumer demand."
He sounded a cautionary note on Russia and China because of possible political influences and instabilities while naming South Africa and Indonesia as most promising markets.